Mr Chapman, who contested the Christchurch mayoralty unsuccessfully in 2005, said he planned to "establish a leadership" in Dunedin soon.
"We have membership and committees being formed in about 22 towns and cities right now, including Dunedin, North Otago, Central Otago and Southland."
He planned to visit all the South Island branches, including Dunedin, by the end of the year, he said.
If an Asian family living in Dunedin was offended by the flyer then they had emigrated to the wrong country, he said.
"If they can't accept that we are in a free country, in a free society, with free speech, then they really came to the wrong country. If they want to go to a country that is full of fear, where people aren't allowed to speak out, they really need to go back to whatever country they came from."
A Dunedin mother of five, who did not wish to be named for fear of retribution, said she emigrated from Malaysia to Dunedin in 2002 and the family had never experienced racial abuse until she found the flyer in her letterbox earlier this month.
"I've never encountered racism in this lovely peaceful city. The weather is cold but the people are warm."
The flyer had unfairly targeted Chinese citizens because they, like many other Asian immigrants, had invested their "hard earned life savings" in New Zealand.
She and her husband had bought a home in Dunedin and raised five honest hard-working children, she said.
She read the blog mentioned on the flyer and was "appalled" and feared the flyer would "stir negative sentiments" towards Asians living in Dunedin.
Race Relations Commissioner Dame Susan Devoy said the Human Rights Commission would work with police to provide assurance to those upset and offended by the flyer and blog.
"Who wouldn't feel threatened by this kind of material? It presents a hateful view of law-abiding people. It is unfair and based on ignorance, intolerance and prejudice," Dame Susan said.
Senior Sergeant Kelvin Lloyd, of Dunedin, said anybody distributing material that could "incite a racial issue" should be careful.
"It is something we would take a very dim view of."
In 2011, a group called Right Wing Resistance, headed by Mr Chapman, was investigated after pamphlets urging people to "Stop the Asian Invasion" were distributed in Auckland and Christchurch.
