In an exclusive interview, Australia's first ambassador to China has raised the alarm about China's influence in the higher education sector.

Stephen Fitzgerald singled out Bob Carr's Australia China Relations Institute for particular criticism, saying universities need clear firewalls between donations and research.

ACRI, part of the University of Technology Sydney, was established with a large donation from the Chinese businessman Huang Xiangmo.

Mr Huang was the donor at the centre of the controversy surrounding Labor senator Sam Dastyari.

"I wouldn't have taken the funding," Mr Fitzgerald told Background Briefing.

"This is one of the really difficult issues about what is happening at the moment, because you don't want to say no to all Chinese money.

"That would be ridiculous, self defeating, but you have to put firewalls between the donation and the way it is spent, and you have to be certain about the origins of that money."

The director of ACRI, former foreign minister Bob Carr, said he disagreed.

"[This criticism] is coming from people on the cold warrior fringe of the Australian politics, people who are resentful of any hint of Australia running a pragmatic national interest-based China policy," he said.

"There are two standards being applied here."

'No place' for Confucius institutes

As well as ACRI, hundreds of other language and culture centres have been established on campuses worldwide through confidential agreements between universities and the Chinese education ministry.

Mr Fitzgerald said he believed these centres, known as Confucius institutes, had no place in Australian higher education institutions.

"I just don't think they should be in universities," he said.

"Have them in Australia by all means; have them all over the country. I'd welcome them, but I don't think they should be in universities."

"There will be people who have been involved with these institutes who will say there has never been one instance of any attempt to influence what we teach and what we say.

"There will be others who might admit that there has been such an attempt."

Controversy over Sydney Uni plan

Background Briefing has revealed that at the University of Sydney, a confidential 2007 plan included a clause that would have seen the university's existing Chinese language program incorporated into a Confucius institute.

This draft agreement ended up in the hands of Professor Jocelyn Chey, the former Australian consul-general in Hong Kong and a visiting professor at the university's Department of Chinese Studies.

"I wasn't sure that the university authorities knew what they were letting themselves in for," she said.

"There's the question of academic freedom and the right of academics not just to teach but to research and publish in areas where they are not under the guidance or direction of anybody."

Professor Chey wrote a strongly worded letter to the vice chancellor outlining her concerns and saying the Confucius institute should be rejected, or the arrangement should be significantly modified to protect the integrity of the university.

"People who accept donations should be aware of the expectations and obligations that they're taking on with the finance," she said.

The university senate voted in favour of the Confucius Institute, but adopted some of the changes to the arrangement that were recommended by Professor Chey.

A University of Sydney spokesperson confirmed a proposal to establish a Confucius Institute at the University of Sydney was circulated to the senate in 2007.

Feedback from staff was considered, and it was confirmed that the university did not intend for existing university programs to be delivered by the Confucius Institute.

The spokesperson said these programs continue to be delivered by the Department of Chinese Studies in the School of Languages and Cultures.

Hear Hagar Cohen's full investigation on RN's Background Briefing at 8:05am on Sunday, or subscribe to the podcast on iTunes, ABC Radio or your favourite podcasting app.