"First of all it's not going to be a major base to deploy large amounts of troops and it will be sitting out like a shag on a rock a long, long way away from where China deems areas of strategic significance".
China had been more engaged with the Pacific recently and its naval ships visited Vanuatu in 2017, but those sorts of visits were normal for all nations to conduct, Ms Bishop said.
Vanuatu's high commissioner in Canberra, Kalfau Kaloris, said his country's Foreign Ministry was "not aware of any such proposal".
Vanuatu, a former British-French colony previously known as the New Hebrides, housed a large US military base during World War Two aimed at helping stem the advance of the Japanese army through the Pacific towards Australia, 2,000 km (1,200 miles) to the west.
China has also faced criticism over its activities in the disputed South China Sea, where it has been building artificial islands on reefs, some with ports and airstrips.
Bateman said Vanuatu would offer "some strategic advantages" for China, but that a military buildup in the country remained unlikely.
"There were a number of players doing certain things in the Pacific that are not good for the peace and security, long-term, of the Pacific, or for the growth of democracy itself", Peters said.
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Foreign Minister Julie Bishop said she is confident of Australia's strong relationship with the island nation 1750km east of northern Australia.
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 United States forces operating where they needed to, he said.
Zhang Baohui, a mainland security expert at Hong Kong's Lingnan University, said while China had a thirst for long-term bases and reliable ports, the Indian Ocean was a greater priority.
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.
"Our economy is stagnant, we're just blindly accepting the intervention of countries like China who come in with their generosity but we've got to know what's in store for them at the end of all of this", Mr Kalsakau told Pacific Beat.
"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". When the government defaults, China enacts a "debt-equity swap" and takes over the asset.
However, Vanuatu's Foreign Minister Ralph Regenvanu denied the reports this morning. China's defence ministry said the Fairfax report "completely did not accord with the facts" while a foreign ministry spokesman said the report was "fake news".
There are other signs that Pacific governments are increasingly beholden to Beijing, such as Taiwanese trade offices closing in the region as local governments bow to pressure from the Chinese government, which insists Taiwan is part of mainland China and should not be recognised even tacitly as an independent government.