Why Did Timor-Leste Sign a Comprehensive Strategic Partnership With China?

The recent agreement between Timor-Leste and China to upgrade their bilateral relations to a comprehensive strategic partnership drew plenty of reactions. Many speculated about what the agreement means for the political and security situation in the Asia-Pacific, particularly for Timor-Leste’s close neighbor Australia, which sees the region as its sphere of influence. Seen through that lens, the upgrade has been interpreted as “giving two fingers” to Canberra in “the classic ploy of the weak state.” Timor-Leste is branded as “playing the China card” to get a better deal from Australia.

The view from Timor-Leste itself is quite different.

Over the years, Dili’s foreign policy has been guided by the goal of collaborative and friendly relations with the immediate neighboring countries and those beyond to ensure the young country’s survival and development. During the swearing-in ceremony of the Ninth Constitutional Government in July this year, Prime Minister Xanana Gusmao said that “for Timor-Leste, there are no allies or enemies; everyone will be only and only friends.” 

Timor-Leste has always forged good relations with all countries while maintaining the principles of independence and sovereignty. In this increasingly complex geopolitical situation, it is difficult for small countries like Timor-Leste to navigate through the rivalry between world’s major powers without the risks of its actions being misinterpreted. But what does this strategic partnership really mean for Timor-Leste?

To understand Dili’s outreach to China, one needs to look at the current state of development in Timor-Leste and the challenges it faces. In the last 15 years or so, Timor-Leste has mainly relied on the money from its oil resources to develop the economy, which the government uses to finance its activities – creating a unique situation where economic activities in the country are driven by state expenditure. An official government report indicates that a total revenue of $508.5 million was generated in 2020, of which 80 percent came from oil revenues. This shows that Timor-Leste has underdeveloped non-oil sectors and weak private actors to raise domestic revenues, which could help the country move away from its oil dependency. 

In addition, analysis of trade data from 2008 to 2021 shows that Timor-Leste imported goods worth $7.2 billion during that period, while its exports were worth a mere $613.4 million – exposing the country’s extreme trade deficit. This trade deficit trend reveals Timor-Leste as an import dependent country, further highlighting its lack of domestic industries. 

Early this year, President Jose Ramos-Horta raised questions about the country’s failure “to create policies to develop and hold the nation together, with common, inclusive and sustainable vision” as well as the absence of detailed policy to achieve economic and social development goals envisioned in the Strategic Development Plan (SDP) 2011-2030. The questions are valid because although tremendous progress has been made, Timor-Leste still falls short in many key areas. 

For example, information derived from the Population and Housing Census 2022 indicates a low employment to population ratio (only 34.9 percent), exposing low employment among the working-age population. That, in turn, reveals that Timor-Leste’s economy is too underdeveloped to create jobs. 

The same census also revealed contrasting progress between urban and rural areas. For example, 52.8 percent of households in urban areas have used clean energy for cooking compared to only 9.4 percent in rural areas; 93.4 percent of households have improved sanitation facilities in urban areas compared to 73.9 percent in the rural areas; and there is a 94 percent literacy rate among the youth (15 to 24 years of age) in urban areas compared to 84.1 percent in the rural areas. This urban-rural development gap should not be overlooked given that 71 percent of the country’s 1.3 million people live in the rural parts of Timor-Leste. 

Similarly, the Labor Force Survey 2021 showed that only 16.8 percent of the labor force has started and/or completed tertiary education, showing a low level of educational attainment in the country. This is consistent with the results of the 2015 Census, where only 5.3 percent of the population aged 15 years of age and older had finished university studies.

Over the years, Timor-Leste’s government has continuously emphasized the importance of the productive sectors (particularly tourism and agriculture) and has made these sectors a priority in its quest to open a path leading to economic diversification. To enable the diversification of the economy, the government has invested greatly in the improvement of key infrastructure to support economic activities. However, an analysis of the budget expenditure over the 10 year period from 2011 to 2020 showed that only 1.3 percent has been spent in the agriculture sector and 0.2 percent for the tourism sector out of $3.6 billion in total spending on infrastructure development. This exposes a lack of investment commitment and does not reflect the priority to improve the productive sectors, which makes it more difficult for the country to diversify its economy. 

Timor-Leste has always been consistent in terms of building cooperation and receiving international support for its development from various countries. For example, Timor-Leste has built a Strategic Partnership with Australia’s Northern Territory and a development partnership with Australia to support business and trade, tourism and agriculture, human development and economic diversification. Dili also signed a Millennium Challenge Corporation (MCC) Agreement worth $484 million with the United States to improve the water and sanitation sector. 

In trade as well, Dili embraces all partners. Out of the $7.2 billion worth of imports to Timor-Leste from 2008 to 2021, $2.08 billion (29 percent) came from Indonesia, $897.6 million (12 percent) from Singapore, $742.8 million (10 percent) from China, $376.7 million from Vietnam and $347.9 million from Malaysia (a roughly 5 percent share each). 

As a country that recently emerged from a long-term conflict, Timor-Leste faces a development challenge. Therefore, it explores all options available to it to achieve development, including building partnerships with countries like Australia and China. 

At this particular moment, with the Bayu Undan gas field expected to run dry this year, Timor-Leste urgently needs to find partners that can help to develop the Greater Sunrise gas field, which is vital for the future development of the country. Development of the Greater Sunrise gas field that has been stuck for a long time due to disagreement on the option to bring the pipeline to Timor-Leste or Darwin, Australia. 

A year ago in Australia, Ramos-Horta said that Timor-Leste looks to bring the pipeline to its shore as part of the national strategic goals. When asked about the position of Australia on developing the pipeline and related infrastructure in Timor-Leste, Australia’s Special Representative on the Greater Sunrise project, Steve Barrack, said that it is a matter for “the joint venture to determine and Australia does not have a position on this at all.” 

Timor-Leste will look to partner with China on infrastructure for the Greater Sunrise gas field if it is the only country willing to support this endeavor. 

This comprehensive strategic partnership with China, nonetheless, raises concerns about Timor-Leste following the footsteps of Solomon Islands, which signed a controversial security agreement with China in 2022. In particular, point 10 of the China-Timor-Leste joint statement said that “the two nations agreed to enhance high-level military exchanges, strengthen cooperation in areas such as personnel training, equipment technology, the conduct of joint exercises and trainings.” 

While the details of this agreement are not yet known, Timor-Leste’s political posture is clear regarding who it leans toward, considering its democratic system of governance and respect of human rights. Australia and Timor-Leste have engaged in a Defense Cooperation Program (DCP) since early 2001 focusing on developing capabilities in strategic policy, maritime security, and infantry skills, among others, which demonstrates where Timor-Leste’s long-term goals lie. 

This upgraded partnership, thus, should not be viewed as “playing the China card,” but rather as one of the practical solutions to achieve economic development dictated by the situation currently the country faces. Unintentionally, the agreement may have led to stepping on some toes, but it does not mean that Timor-Leste favors China over its close neighbors. On the contrary, this reflects Timor-Leste’s frustration over its inability to develop its own resources due to lack of technical capacity and financial means, as well as the lack of decisive action on this matter from its long-time friend.

After 20 years of independence, Timor-Leste continues to face a dilemma where its vision for economic development is constrained by an inability to move away from dependency on oil resources. While it is understood that an oil-dependent economy is not sustainable, many in the country have believed that oil money is the catalyst to achieve economic diversification. During this make-or-break time, the greatest enemy for Timor-Leste is time. The window is closing for the founding fathers to leave a lasting legacy for development by bringing the Greater Sunrise pipeline to the country, which is framed as a sovereignty issue. The time is now to develop these additional oil and gas resources because the world is moving toward renewable energy resources. 

To say Timor-Leste is playing the China card or, more colorfully, “trying to throw a hedgehog down Canberra’s pants” (as James Curran of the Australian Financial Review put it) misses the point. As it stands, it seems more like a country left with no other option in its quest for development. For Timor-Leste, the solution for its economic development is bringing pipelines to its shore, and it should not be deprived of opportunities to explore options to make that happen. Shoving this agreement into the restrictive framework of geopolitics is not in the best interest of either Australia and Timor-Leste.