Australian intelligence and security figures, along with their partners in the United States and New Zealand, have been watching with concern as Beijing deepens its influence with Pacific island governments through infrastructure building and loans. Beijing has been showering Vanuatu, which has a population of about 270,000, with hundreds of millions of dollars in development money and last week committed to building a new official residence for Prime Minister Charlot Salwai as well as other government buildings. Multiple sources said Beijing’s military ambition in Vanuatu would likely be realised incrementally, possibly beginning with an access agreement that would allow Chinese naval ships to dock routinely and be serviced, refuelled and restocked. This arrangement could then be built on. Loading Replay Replay video Play video Play video One of the most substantial projects funded by Chinese money is a major new wharf on the north island of Espiritu Santo. 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 purpose is to host cruise ships, it had the potential to service naval vessels as well.

The wharf is close to an international airport that China is helping Vanuatu upgrade. Fairfax Media understands there are senior figures within China’s People’s Liberation Army who would like to move quickly to establish a proper base on Vanuatu. Vanuatu's high commissioner in Canberra, Kalfau Kaloris, said his country's Foreign Ministry was "not aware of any such proposal". A spokeswoman for the Chinese embassy in Canberra declined to comment. Loading

China has already projected its military strength into the sea by building military capacity on a number of reclaimed reefs in the South China Sea, prompting condemnation from the international community, including Australia. Vanuatu is one of the few countries that steadfastly support Beijing’s controversial island-building program. Comparisons have been made in Canberra and Washington to methods China has used in the Indian Ocean, where it has recently established its first military base in the African nation of Djibouti and is reportedly considering military facilities in Pakistan and Sri Lanka. The Djibouti base features a port, helicopter base, hangars and accommodation for up to 10,000 troops. Tonga has also been mentioned in government circles as a possible site for a Chinese base, though recent discussion has centred around the intense efforts China has been putting into Vanuatu. Foreign Minister Julie Bishop visited Vanuatu with Prince Charles on Saturday in a diplomatic tour that Fairfax Media has been told was aimed at demonstrating the merits of the Commonwealth’s commitment to a free and open system of international rules.

Chinese President Xi Jinping and Djibouti's President Ismail Omar struck a deal to establish China's first overseas naval base in Africa. Credit:Reuters Defence experts said a military base on Vanuatu, which would likely be followed by bases elsewhere, would allow the PLA to challenge the US’s post-war dominance of the Pacific, which is strongly supported by Australia and has been seen as a cornerstone of Australia’s security. “If it turns out there are one or more Chinese bases ... what it has the ability to do is challenge, and make much more challenging, American access into the region,” said Charles Edel, a former adviser to former US secretary of state John Kerry. “Chinese presence in Vanuatu, while today about fishing access and commercial trade, tomorrow could represent a threat to Australia’s northern approaches." Dr Edel, who is now at the US Studies Centre, said this would change Australia’s external security environment in a way not seen “probably since the 1940s”.

Such a Chinese presence would make the seas “more crowded” for the Royal Australian Navy, though professional forces could manage this safely and it would not stop Australian or US forces operating where they needed to, he said. He added that access to plentiful fisheries to feed China’s fast-rising demand for protein were likely one reason for consolidating its influence in the South Pacific. Zack Cooper, a former White House and Pentagon official now at the Washington-based Centre for Strategic and International Studies, said he had expected China to establish bases in the Pacific and predicted more to follow. Dr Cooper said with the US focused on north Asia, Washington would expect Australia to stop the South Pacific from sliding too deeply into Beijing’s hands.

“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.” China has set a pattern in the Indian Ocean whereby it builds infrastructure paid for by concessional Chinese loans which the local government cannot repay. When the government defaults, China enacts a “debt-equity swap” and takes over the asset. China reportedly accounts for nearly half of Vanuatu’s $440 million foreign debt. Beijing last week announced it would pay for and build a new official house for the Vanuatu president, a new Finance Ministry building and an extension on the Foreign Ministry building at a reported total cost of about $36 million.