The row over claims of Chinese students' spying in Australia has deepened, with Sydney University vice-chancellor Michael Spence accusing the Turnbull government of "Sinophobic blatherings" and warning it is damaging one of Australia's fastest growing industries.

As the head of Australia's oldest university, with a 67,000 student body and 15,000 high fee-paying overseas Chinese students, Dr Spence warned that continuation of a hostile attitude by the government could even threaten Australian iron ore and agricultural exports to China.