The Prime Minister also said the Government might be subject to international litigation if the recommendation was overruled.
On the face of it, this appears true. Regulation 28 (c) prevents the Government breaching international obligations, such as the New Zealand-China Free Trade Agreement, article 138 of which requires both governments to treat foreign and domestic investment applications equally.
But closer examination suggests the Prime Minister's claim is misleading. Article 205 allows the Government to override the agreement when necessity dictates "favourable treatment to Maori" in fulfilment of "obligations under the Treaty of Waitangi".
Regulation 28 (f) of the act requires a foreign investment to advance "significant Government policies or strategies".
Clearly, Mr Key favours the opportunity Shanghai Pengxin provides in China. But supporting the Maori trusts in the Fay bid - Ngati Rereahu (King Country), Tauhara and Pouakani (Lake Taupo) would also advance significant National Government-Maori Party goals in Maori economic development, unemployment and poverty.
The three are party to claims over significant land losses, the settlements for which will amount to 2 per cent.
Facilitating a process under which these groups were able to be part of the deal would increase their compensation, retain domestic ownership of land and meet Treaty obligations.
During the election, Mr Key said there would be no "special treatment for Maori" with respect to strategic assets sale.
Obviously this also includes the Crafar farms. If so, then the Prime Minister is applying a double standard whereby the Crown can self-award a 98 per cent discount on Treaty settlements while rejecting a Maori bid 20 per cent less than the market value set by the Shanghai Pengxin Group.
Pakeha might baulk at this as too much favouritism.
But a bid at 80 per cent of market is not an unusual price under conditions of bankruptcy or mortgagee sale.
Another option is for the Government to pay the gap between what trusts can afford and what the market demands, a figure that would be much less than $1.77 billion the Crown paid to rescue South Canterbury Finance's mainly Pakeha, one assumes, investors - a package that exceeds the value of all Treaty settlements since 1990.
Another option, one consistent with regulation 28 (f) enabling New Zealanders to participate in the investment, is to require insertion of the Maori interests within the Shanghai Pengxin deal.
This would mirror the way China treats foreign investment in land - only leasehold land in partnership with local investors is available.
Landcorp will manage the properties for Shanghai Pengxin, probably at $3 million a year - the receiver's fee.
Let the trusts manage their farms. Such a deal will retain access to China as a market, provide cash for the Crown, stimulate Maori development and honour the Treaty.
Foreign ownership of land is worrying.
Mr Key downplays the issue, saying only about 3 per cent of all land and 1 per cent of farmland is foreign owned.
Mr English more accurately says that no one is really sure how much land is held by overseas owners.
The Campaign Against Foreign Control of Aotearoa claims 7 per cent of our productive land - farms, forests and vineyards - is foreign-owned.
If this is so, then based on a Ministry of the Environment estimation of productive land, 1.25 million hectares of our best land might be foreign-owned.
The overall figure remains a mystery.
Over the past seven years 526,000 net freehold and leasehold hectares have been sold to foreign investors. Unknowns include unclear figures between 1988 (when foreign sales began) and 2004 and that the Overseas Investment Office considers only applications worth more than $100 million or for more than 5ha of "sensitive land".
Taking this into account, it is possible that 5 per cent of our 26.8 million hectare nation might be overseas-owned.
Net land sales are increasing at an alarming rate.
Between 2001 and 2009, 1517 foreign sales were approved and only 44 were declined.
Last year, 84,900ha hectares were sold overseas, - 2.5 times more than for each of the previous three years and nearly five times more than 2007.
Three reviews of foreign investment policy have made applications easier.
Long-term we might invoke Pita Sharples' call to offer first right of refusal to Maori for potential overseas land sales.
Whatever the solution, the Prime Minster needs to front up on his concern New Zealanders might become "tenants in our own country". Maori would make good landlords.
Rawiri Taonui is adjunct professor of indigenous studies at AUT.
