Unconfirmed reports of China's plans to build a military base on Vanuatu, an island nation located nearly 2,000 kilometers (1,100 miles) off of Australia's east coast, are creating new tension between Australia and China.

Although the plans were denied by both countries, Australian Prime Minister Malcom Turnbull warned China against establishing a military presence on Vanuatu, or any "neighbors of ours," saying it would be viewed "with great concern."

The reports have compounded longstanding anxiety of Australian politicians over China's growing sphere of influence.

China and Australia have struggled to maintain cordial diplomatic ties over the past 12 months. On Thursday, China's ambassador to Australia, Cheng Jingye, told Australian media that the relationship has lately been marred by "systematic, irresponsible, negative remarks and comments" from Australia that could adversely impact trade relations.

Threat of 'foreign interference'

Late last year, Australian Prime Minister Turnbull warned parliament of the "real" threat of foreign infiltrators in Australia's political system, and the particularly "disturbing" influence the People's Republic of China (PRC) had in the country.

He said reports that China's Communist Party had sought to interfere in Australian politics must be taken seriously.

In that same month, the Australian parliament proposed legislation cracking down on foreign interference, aiming to target espionage and unwanted outside influence within the political system.

Read more: China accuses Australian media of racism and paranoia

The measures, expected to be passed in the coming weeks, criminalize "certain acts of covert foreign interference" and ban foreign donations to political parties and activist groups. Additionally, those working for, or acting on behalf of, foreign interests would be required to register themselves if they seek to influence politics in Australia.

While Turnbull explicitly said the legislation was not directed at any particular country, his use of quotes from the late Chinese leader Mao Zedong in his explanation of the move suggested otherwise.

The Chinese foreign ministry has since denied any interference, calling the claims "unfounded and extremely irresponsible," and urging the Australian government to "discard prejudice and speak and act more in a way that will be conducive to boosting the China-Australia relationship and deepening cooperation."

Caught between China and the US?

According to Hugh White, a professor of strategic studies at the Australian National University, at the heart of this dispute is the tension between Australia's economic dependence on China and its diplomatic deference to the United States.

As Australia's biggest trading partner, China is essential to the country's economic well-being. But from a security perspective, it is reliant on the US as a military power and a fellow liberal democracy.

"China has become extraordinarily important for Australia economically. Every [country in the world] thinks they are economically dependent on China — but Australia truly is. Not just now, but for the future. There is no 'Plan B,'" White told DW.

China is Australia's largest trade partner. Bilateral commerce was worth AU$155.2 billion ($119 billion, €97 billion) in 2016, with Australia exporting AU$93 billion worth of goods and services to China while importing AU$62.1 billion worth of products. China thus accounted for 23.1 percent of Australia's total trade.

Read more: Australian publisher pulls book amid China backlash fears

A quarter of Australia's tourism revenue is sourced from Chinese visitors, and Chinese students make up 31 percent of its highly profitable international student intake.

"It's the first time in history that Australia has had economic dependence on a country that is not an ally, or an ally of an ally," White said. And China is not just an enormous market, he points out, but a "big strategic player, increasingly over the last decade."

"Australia historically believed it didn't have to choose between America and China, assuming that America would remain the dominant power in Asia and that China would accept that, but that is much less clear now," said White.

And although the expert speculates it is unlikely China would build a military base on Vanuatu, he cautions the "real point here is that they could if they wanted to — they easily have enough power and influence in small, weak states in the Pacific to do so."

China's interest in good relations

But as Merriden Varrall, director of the East Asia unit at the Lowy Institute, told DW, China also has an interest in maintaining a positive relationship with Australia, conceding that the past 12 months have seen a "rough patch" in relations, but warning against "overstating the depth of the issue."

Like Australia, China relies on bilateral ties for economic, strategic and political security. Economically, Varrall said, it would be possible for China to trade with other countries (like sourcing iron ore from Brazil, for example), but because the relationships and infrastructure are not in place, China would not be in a rush to seek such alternatives.

In strategic terms, Varrall said, "it is important for them to have a good relationship with a Western power" because "this gives them a direct connection to the major powers or the so-called 'Five Eyes.'"

Read more: Australia drifts toward China amid wobbly US ties

Australia, New Zealand reassess Pacific role amid growing Chinese influence

For domestic politics it is also paramount that China, which pursues a foreign policy of "rejuvenation and reemergence," is "able to tell its population that it can manage this relationship well."

Han Feng, researcher at the National Institute of International Strategy at the Beijing-based think tank Chinese Academy of Social Sciences, told DW that China-Australian relations were at a relatively good place, even if many Australians wouldn't agree.

"With economic and trade agreements, the two countries have been partners for almost ten years and Australia's trade status in China has also been raised," said Han. 

"With the joint efforts of both countries, the overall relationship has elevated to a relatively high level," he said, adding that the two countries had encountered difficulties that were mainly due to "problems of trust."

According to Professor White, much of the tension between the two countries can be explained by Australia's broader anxieties about the way geopolitics in the Asia-Pacific is shifting.

"This is a further sign of Australia waking up to the fact that China is a lot more powerful than we realize. It is Australia learning to live with the new power politics in Asia."

Han said although Australia would prefer the US-led system in the region, the trend was shifting away from that.

"There is another voice calling for people to cooperate with China," said Han.

But part of engaging with China in a constructive way, Varrall explains, involves understanding what underpins the country's foreign policy outlook, which includes a deep-rooted persecution complex that stems from the "century of humiliation" they endured from Japanese and Western powers.

"It's no secret that China wants to reshape global narratives to make itself look good," Varrall said.

"Chinese politicians and lawmakers have a particular set of worldviews and we need to understand them, not because they are true or they are right, but because they help explain China's foreign policy."

In this way, Varrall said Australia must "come to terms with China as it is, not China as it wants it to be."