“The government has made our displeasure with those remarks known,” Federal Trade Minister Simon Birmingham said.
A spokesperson for the Chinese embassy gave details of DFAT head Frances Adamson's phone call to ambassador Cheng Jingye over his threats.
The spokesperson said Ms Adamson told Mr Cheng the proposal didn't have a political motive and didn't target China.
“Ambassador Cheng elaborated clearly China's relevant position, stressing that no matter what excuses the Australian side has made, the fact cannot be buried that the proposal is a political manoeuvre,” the spokesperson said.
“Just as a western saying goes: ‘Cry up wine and sell vinegar'.”
The saying is a reference to offering up a good product but substituting it with a sham.
The ambassador also told Ms Adamson Australia must "put aside ideological bias, stop political games and do more things to promote the bilateral relations", the embassy said.
Senator Birmingham said a boycott from China would be inappropriate.
“We won't be changing our public policy position on such a serious public health matter in the face of any threats of coercion from any other nation.”
He said the virus had led to hundreds of thousands of people dying, millions losing jobs and billions facing massive disruption to their lives.
“The least the world can expect is a transparent inquiry into the causes of COVID-19 so that we can understand how best to prevent a repeat episode any time in the future.”
Labor is backing the government's calls for a review into the origins of the virus.
Mr Cheng said Australia's support for the inquiry could result in Chinese tourists having second thoughts about visiting.
“Maybe the ordinary people will say ‘Why should we drink Australian wine? Eat Australian beef?’," he told The Australian Financial Review.