It lies just to the north of Australia, but the tiny and impoverished country of Timor-Leste is strengthening ties with China as it faces a looming fiscal crisis – a move that comes after decades of mistreatment by Canberra and raises difficult questions for its leaders.
Timor-Leste, which is situated 680km from Darwin and has massive and untapped undersea resources, surprised the region last week when it formally upgraded bilateral relations with China. A joint statement included plans to enhance military cooperation and explore developments of Timor-Leste’s oil and gas resources.
But analysts have suggested the move could be a strategy to influence Australia into giving it more financial support for the development of the lucrative oil and gas reserve, known as Greater Sunrise, in the seas between the two countries.
The joint statement released by China’s Xi Jinping and the Timor-Leste prime minister, Xanana Gusmão, said the new partnership was a sign of increased cooperation and “mutual political solidarity”. It followed a recent speech to the UN general assembly by the Timorese president, José Ramos Horta, who said that talk of China as “a menace” was “unjustified and unfair” – and the world should not fear any of the global superpowers.
“Global China has fuelled trade, economic growth and prosperity in the region,” he said.
The upgrading of ties, made on the sidelines of the Asian Games in Hangzhou, comes amid efforts by the US and allies like Australia to counter Beijing’s growing influence in the Indo-Pacific.
“The People’s Republic of China (PRC) would stand to benefit from increasing its influence in Timor-Leste,” says Parker Novak, nonresident fellow with the Atlantic Council’s Indo-Pacific Security Initiative and Global China Hub, noting its position in the middle of the Indonesian archipelago, an hour’s flight from Australia.
“What happens in Timor-Leste carries significant ramifications for Indonesia and Australia, and vice versa.”
But analysts have said that until there is detail of exactly what Beijing and Dili plan to do, it’s possible that Timor-Leste is using its growing relationship with China at least partly as a tactic to secure more investment from Australia.
‘A better deal from Canberra’
In 2022, Ramos Horta warned Australia that Timor-Leste would welcome Chinese investment in Greater Sunrise if Canberra did not intervene to encourage the corporate partners of the project, including Australia’s Woodside Energy, to agree to pipe the gas and oil to a proposed facility on Timor’s south coast, a multibillion dollar project called Tasi Mane, instead of Darwin.
At the time there was no indication the Chinese investment banks were actually interested, prompting some analysts to say Ramos Horta was “playing the China card” to rattle Canberra.
“He knew if he said that in Australia it would get attention,” said Charlie Scheiner, of the Timorese human rights group, La’o Hamutuk. “Maybe [Gusmão’s] visit to China was doing the same thing.”
But the join statement between Gusmão and Xi last weekend – including an agreement “to enhance high-level military exchanges – rang some alarm bells among observers of the controversial security pact signed between China and Solomon Islands in July, which would allow China to deploy soldiers or police to the country and make naval visits, according to a leaked draft.
“There are reasons we can look to some of the events in the Pacific Islands and find an echo in what this proposed agreement means,” says University of Tasmania law professor Richard Herr, a former adviser to Pacific Island nations. But he noted there was no detail yet, and Timor-Leste had signed a reciprocal defence cooperation agreement with Australia last year.
“If they’re signalling they want a better deal out of Canberra that’s one thing, but to do it by raising it as a security issue raises the stakes to a particularly high level,” says Herr.
A country in crisis
Timor-Leste is pursuing a high stakes strategy. The government relies almost entirely on oil and gas revenue to function, but the last operational field dried up this year and the state petroleum fund, which provides about 85% of the government’s budget, is set to run out within a decade. Without a major new sources of revenue Timor-Leste is facing a crisis. The country, which regained independence from Indonesia less than 25 years ago, is one of the world’s poorest with about 40% of people living in poverty and high rates of malnutrition.
The only major resource project on the horizon is Greater Sunrise, and La’o Hamutuk says the government is refusing to properly explore economic diversification instead.
It took almost half a century for Timor-Leste and Australia to come to the final agreement on Greater Sunrise rights in 2018. Australian cabinet documents have revealed that Canberra appeared driven by its desire for resource rights when it legitimised Indonesia’s invasion of Timor-Leste in the 1970s. Australia was also caught spying on Timorese negotiators in 2004, in a case that eventually went to The Hague and saw the dissolution of an earlier agreement.
Once the treaty was signed in 2018 – without compensatory clauses – Australia continued to draw revenue (totalling more than it gave Timor-Leste in foreign aid) from areas determined to be Timorese until ratification.
But now progress on developing Greater Sunrise has stalled because the current Timorese leaders insist on piping its gas to Tasi Mane instead of Darwin. The multibillion dollar development – which so far consists of a little-used airport and a crumbling highway – was paused by the previous administration, but in June Gusmão won the prime ministership again and restarted it.
Current partner Woodside objects to the proposal, and previous commercial partners have sold their stake to the Timorese government.
The project needs a reported $18bn dollars of investment – more than five times Timor-Leste’s annual GDP.
“Timor-Leste has courted investment in Tasi Mane from both the PRC and the collective west. For years, it has played up the prospect of PRC investment to push western countries, namely Australia, to invest,” said Novak.
Beijing is by far the more powerful partner – it is 600 times Timor-Leste’s size with 1,000 times more people and a GDP 5,000 times larger. But it gains regional influence from the agreement, and another global voice giving support to its stance in Taiwan. It could also gain some strategic advantages with the military ties, and in the unlikely event of Chinese investment in Tasi Mane, it could potentially gain access to a deepwater port on the northern edge of the Timor Sea, opposite the Darwin port it controls under a controversial 99-year lease. But these are big ifs.
“While [investing] is geopolitically appetising for Beijing, there’s a reason investment has yet to materialise,” said Novak.
“At a time where the PRC is re-evaluating its infrastructure investments globally, it seems unlikely they would invest in a commercially risky project like Tasi Mane, but doing so is not completely out of the question.”
The Australian government is treading carefully, as it seeks to rebuild neglected Pacific ties and make amends with Timor-Leste. In a statement the department of foreign affairs and trade said “Australia respects Timor-Leste’s sovereignty and ability to make its own choices”.