China has also become increasingly active in the South Pacific, undertaking several infrastructure projects and providing aid and financing to small, developing island nations in the region.
Vanuatu's high commissioner in Canberra, Kalfau Kaloris, was quoted as saying his country's foreign ministry was "not aware" of China's determination to build a permanent presence on the island.
Chinese money has already helped finance a new wharf on the north island of Espiritu Santo, alongside an upgrade to the worldwide airport, it was reported. Jonathan Pryke, a Pacific islands expert with the Lowy Institute, said the Luganville wharf had "raised eyebrows in defence, intelligence and diplomatic circles" in Canberra because while its stated goal is to host cruise ships, it had the potential to service naval vessels as well.
"I would hope the upsurge in the paranoia about China in Australia is not used to destroy or denigrate the good relationship Vanuatu has with Australia".
Fairfax reported there had been informal discussions between China and Vanuatu, but no formal offer, about a military buildup.
It's been suggested that a Chinese base in the South Pacific could outflank USA forces on Guam and slow efforts to bring in reinforcements to fight off an invasion of Taiwan. Even 15 years ago who would have thought that China would have a Pearl Harbour-sized military operation in a place like the South China Sea?
Ms Bishop said while China was investing in infrastructure around the world, it had to date only established one military base - in Djibouti in northern Africa.
Australian Prime Minister Malcolm Turnbull did not sound completely reassured by Regenvanu's assurances.
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Vanuatu insisted on Tuesday it had no plans to allow China to set up a military base on its territory after a report suggesting Beijing was pushing the proposal sparked concern in Australia and New Zealand.
"Chinese presence in Vanuatu, while today about fishing access and commercial trade, tomorrow could represent a threat to Australia's northern approaches", he added.
"I would be very surprised if we saw any development there military, security-wise in the near future", he said.
He said the facility would have the potential to be turned into a military "intelligence platform" especially due to its vicinity to Australia and New Zealand, both close allies of the United States.
The denials won't quell concerns over the communist nation's efforts to grow its influence in the South Pacific.
According to the Fairfax report, initial talks have already begun with Vanuatu, which could result in China establishing a major military presence and upsetting the delicate strategic balance in the region.
If the plan materializes, it will also be a threat to the USA as it would shake-up the country's dominance in the Pacific.
"I think it is important that Australia appreciate that China is far away but Chinese activity is definitely affecting Australia in a much more proximate way".