One security expert based in the United States told Fairfax that Vanuatu - which is less than 2500 kilometres from Sydney - could provide access for China into the Pacific, as it is now blocked further north by the "island chain" of the Philippines, Japan and Guam.
Vanuatuan and Australian foreign affairs officials immediately disputed the claims. This arrangement could then be built on.
Chinese money has already helped finance a new wharf on the north island of Espiritu Santo, alongside an upgrade to the global airport, it was reported.
However, a senior official of the Vanuatu government said that such discussions have never taken place and China isn't planning to build a military base in the island nation.
The wharf is close to an global airport that China is helping Vanuatu upgrade.
The reports were quickly denied by Beijing and Vanuatu, but analysts said it was possible that China was building a facility to track spacecraft, adding that the facility had the potential to be used for intelligence gathering and other military purposes.
A space tracking or satellite telemetry station would not exclude the possibility of building other facilities there although the project would require Vanuatu's agreement, Collin Koh Swee Lean, a research fellow at the S Rajaratnam School of International Studies at Singapore's Nanyang Technological University, said. A Chinese embassy spokesman even called the idea "ridiculous". USA overreacting to what other States are building military bases on the territory of other States. Its only current overseas base is in Djibouti.
Australian Prime Minister Malcolm Turnbull did not sound completely reassured by Regenvanu's assurances.
China's reported choice of Vanuatu to establish a military base is so odd, it alone should spark concern in Australia, an global security expert says.
Any future naval or air base in Vanuatu would "give China a foothold for operations to coerce Australia, outflank the US and its base on USA territory at Guam, and collect intelligence in a regional security crisis", Rory Medcalf, head of the National Security College at the Australian National University, said in a report for the Lowy Institute think tank in Sydney.
"Chinese presence in Vanuatu, while today about fishing access and commercial trade, tomorrow could represent a threat to Australia's northern approaches".
"I would be very surprised if we saw any development there military, security-wise in the near future", he said.
He insisted China has ships in the Pacific Islands for purely humanitarian reasons, pointing to upcoming disaster response drills with New Zealand and Vanuatu.
The denials won't quell concerns over the communist nation's efforts to grow its influence in the South Pacific.
Located off the coast of Australia, Vanuatu is strategically placed for a possible military base especially for China as it flanks Japan and the United States, however, the Foreign Minister of Vanuatu emphasised that it is not interested in any sort of military base.
"It would allow them to have some forces positioned behind the USA base in Guam and would allow China to monitor and patrol the South Pacific Ocean".
"China has travelled very far very fast".
China has set a pattern in the Indian Ocean whereby it builds infrastructure paid for by concessional Chinese loans which the local government can not repay.
China reportedly accounts for almost half of Vanuatu's AUD$440 million (US$338 million) foreign debt.
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