“Sometimes [the Chinese] think they have the power to do anything they want.”

“If you ask the public which country they prefer, they will say the US … They have been around the Chinese so long and they see how the Chinese influence people’s lives. Especially working for Chinese companies.

He went on to say that 99 per cent of average Ni-Vans, as they call themselves, would be against any plan to establish a Chinese military base in Vanuatu.

The official, whom Fairfax Media granted anonymity to speak freely, said clashes were becoming more frequent as the Chinese presence was increasingly felt by the Ni-Vanuatu, the people native to the small Pacific island nation.

He spent several days in hospital and was then, in the words of a local government official who recounted the incident, on the next plane back to Shanghai.

Late last year, a Chinese timber trader who was accused of ripping off locals on the Vanuatu island of Espiritu Santo was severely beaten.

Prime Minister Malcolm Turnbull, while noting Vanuatu’s denials there had been any discussion with China, said Australia would “view with great concern the establishment of any foreign military bases in those Pacific Island countries and neighbours of ours”.

Now minds in Canberra and allied capitals are looking at what comes next. Whatever furious denials the Chinese and Vanuatu governments have made after Fairfax Media reported this week that Beijing was eyeing the establishment of a permanent military presence in the Pacific country, the issue has lately been a subject of serious discussion in Canberra.

The evidence is everywhere, whether it is a new wharf or convention centre paid through grants or soft loans, a new Chinese production plant to export food, or the regular photo opportunities with Vanuatu’s Prime Minister Charlot Salwai and China’s charismatic ambassador to the country, Liu Quan.

One thing everyone agrees on is that China’s involvement in the south Pacific, and nowhere more than Vanuatu, has grown at a breakneck pace.

That means China is following the playbook it has used in the South China Sea and increasingly the Indian Ocean, slowly changing the facts on the ground while avoiding any single intolerable provocation.

Senior officials have referred to the prospect of an increasing presence - up to a full-scale base - as a change to the status quo.

The question then turns to the circumstances in which Vanuatu would accept this move. Salwai said in a written statement on Thursday that his government “will fiercely oppose any attempt to build a military base” in the country.

Fairfax Media has spoken to multiple sources who confirmed high-level concern in Canberra that China has precisely the ambition of a military presence in Vanuatu, even if it starts in an opportunistic and incremental way.

But Beijing has baldly lied in the past. President Xi Jinping vowed while standing on US soil next to Barack Obama in September 2015 that China “does not intend to pursue militarisation” of its artificial islands in the South China Sea.

A Chinese foreign ministry spokesperson said on Thursday that reports of “great concern” in Australia were “sheer fiction”.

All this comes at a time when Turnbull acknowledges there is “some tension” between Australia and China over the government's foreign interference laws, which have reportedly prompted Beijing to stonewall visits by Australian ministers and officials.

“The debt-trap diplomacy that Beijing has conducted in Sri Lanka suggests what the Chinese may eventually do to an increasingly indebted Vanuatu,” said Charles Edel, a former adviser to US secretary of state John Kerry now at the US Studies Centre at Sydney University.

This is a view shared by former officials who can speak publicly.

But senior sources have pointed to the precedents set in the Indian Ocean, where Beijing has used so-called debt trap diplomacy to grab hold of infrastructure in Sri Lanka and shown the same tendencies towards Pakistan.

The Lowy Institute has identified $237 million in Chinese infrastructure loans to Vanuatu between 2006 and 2016, including $114 million for the new Luganville wharf, which Fairfax Media visited this week and which defence experts warn could be used in future to dock Chinese warships.

There have been more loans since then but likely at smaller levels because the International Monetary Fund gave the Vanuatu government a stern warning in 2016 that it risked being overburdened.

IMF figures show Vanuatu’s debt was at 33.5 per cent of GDP in 2016 but could hit 60 per cent by 2021, with China being the driving force behind the growth.

The Lowy’s Jonathan Pryke noted that “this debt is a pretty good piece of economic leverage” for China.

Port Vila market vendor Jackie Willie is concerned about the growing Chinese presence in Vanuatu. Credit:Alex Ellinghausen

Based on conversations with ordinary Ni-Vans on the street, most feel their government has too close a relationship with Beijing. The idea that there are “no strings attached” to the debt to China - the well-known Chinese phrase meaning there are no pesky conditions or lectures about reforming a country’s economy or governance - aren’t well received.

Last month the MP for the island of Pentecost branded a private Chinese company’s donation of 60 laptop computers - one to each parliamentarian - “bribery” and refused to accept one. The government insisted it was fine because MPs would be able to use them for work purposes only.

As well as infrastructure, the prominence of Chinese businesses and property development is prompting resentment. In Whitesands on the island of Tanna, an excessively large factory to process nona fruit has sprung up along with facilities for Chinese workers.

And there has been much talk about Rainbow City, a planned gated community about half an hour’s drive from Port Vila for which there is a super-slick advertising video to investors.

Business owners Richard and Rosemary Lo - pictured with son Mathew - have noticed a shift in sentiment. Credit:Alex Ellinghausen

Mathew Lo, a young resident of Espiritu Santo who helps run a third-generation Chinese family business on the island, said the government needed to have tighter oversight of foreign investment through stricter land planning and environmental standards.

Much of the debate this week has centred around whether Australia is ceding influence to China in the Pacific.

Foreign Minister Julie Bishop maintained Australia had “very good relationships with Vanuatu and I remain confident Australia is Vanuatu’s strategic partner of choice”.

Richard Marles, Labor’s defence spokesman who has a keen interest in the Pacific, told Sky News that Australia “can’t take it for granted”.

Any Chinese military overtures “ultimately speaks to a long-term failure in Australian foreign and strategic policy in the Pacific”, he said.

A building site under the control of the JiangSu Provincial Construction Group in Port Vila. Credit:Alex Ellinghausen

Australia is still the largest aid donor to the Pacific nations and also their largest trade partner. Bishop stressed Chinese infrastructure spending was welcome provided “vulnerable economies are not burdened by debt that they can't repay”.

Pryke said engaging in an aid bidding war was risky because Pacific nations “don’t like being treated like pawns”. He said Australia needed to take a much “harder look at what we’re actually doing and upping our engagement”.



Yet there is a more bluntly cynical view, fairly openly acknowledged in Vanuatu, which says the government is dancing with multiple partners, knowing it can bid up overseas aid and assistance by flirting with countries that are strategic competitors.

Comparing how assistance translates into influence is complicated by the fact China and Australia are pursuing very different models.

Australia’s $70 million in aid this year to Vanuatu is wide-ranging but includes things like helping get the government’s tax collection in order and helping deregulate the country’s telecommunications sector.

Santo harbor master Terry Ngwele at the new wharf in Luganville. Credit:Alex Ellinghausen

Broadly across the Pacific, Australia’s aid has concentrated on promoting long-term economic growth. This should help Vanuatu prosper on its own, but it’s not as sexy as a new airport, wharf, sports stadium, convention centre, take your pick. Those shiny demonstrations of tangibility come famously with “no strings attached”.

Why would China go to the effort of setting up a military presence such as a base in far-flung Vanuatu?

In the big picture, it would enable China to project power into the Pacific Ocean, which since World War II has been the unquestioned domain of the Americans. It is Chinese policy to loosen US alliances in Asia and to stop the US acting freely in the western Pacific.

“If it turns out there are one or more Chinese bases … what it has the ability to do is challenge, and make more challenging, American access into the region,” said the US Studies Centre’s Charles Edel.

He went on: “It’s important to stress that Chinese presence - just like Chinese power - in and of itself is not a problem. It’s how they use their presence. Actions in the South China Sea and elsewhere do not paint a particularly benign picture.”

As well as militarising its artificial islands, China has flouted the UN Convention of the Law of the Sea to which it is signatory, he said. The artificial islands destroyed more than 100 square kilometres of coral reefs, causing a collapse in fish stocks.

Vanuatu's Luganville wharf, captured before its expansion in August 2015, and prior to its completion in 2017. Credit:Google Maps

“If the Chinese were to conduct similar activities in the South Pacific region, it would have an enormous environmental and economic impact on the people of the South Pacific Islands.”

It has taken over the Sri Lankan deep-water port of Hambantota and quickly built up a large military base in the African nation of Djibouti.

“This instance shows that when Beijing decides to establish a military presence, they are willing and able to do so in a large and permanent manner,” he said.

At Million Dollar Point, Luganville

Euan Graham, director of international security at the Lowy Institute, said there was plenty China could do “below the level of challenging the US navy on the high seas”.

“There is the troubling question of how the PLA [People’s Liberation Army] would intervene to protect Chinese nationals and ethnic Chinese in the Pacific, including mounting an evacuation if there was a breakdown of law and order in an island country” he said.

“The fault lines between Chinese nationals and locals are only going to increase because of indebtedness and the ill feeling of economic loss when people feel their place is taken by subsidised Chinese businesses. That worries me because there’s no obvious rule book for handling it, and the Chinese authorities would be under genuine domestic pressure to act.”

Michael Jiang, managing director of Sino-Van Fisheries Limited, in Port Vila. Credit:Alex Ellinghausen

It is well-known that Washington expects Australia to take responsibility for the south Pacific. Australians can expect a sharpened focus from its government towards its near neighbours, though the common view in Port Vila is that Julie Bishop has a better grasp than her predecessors of the region. Certainly more aid cuts would not help.

However much governments talk about co-operation, the visions held by Australia and China of the Pacific region seem at odds. Bishop’s insistence that Australia would remain the partner of choice - or what John Howard used to call “our patch” - was subtly rebuked in a little-noticed moment this week.

“The south Pacific island countries should not be the sphere of influence of any country,” China’s foreign ministry spokesman said in the statement released by the embassy in Canberra.

“Enough with certain Australian individuals’ interference in other’s internal affairs.”

In other words, if Australia regards the south Pacific as its “patch”, China means to decouple those relationships.