DILI — China’s engagement with Timor-Leste is expanding across multiple sectors including infrastructure, trade, education, and defence, as the Southeast Asian nation navigates its post-oil economic transition. With the closure of the Bayu-Undan oil and gas field in mid-2025, Timor-Leste faces the challenge of diversifying its economy, developing export capacity, and creating employment opportunities for its young population of around 1.44 million.

Chinese involvement in Timor-Leste dates back to shortly after the country’s independence in 2002, with Beijing being the first nation to establish diplomatic ties. Since then, relations have deepened, exemplified by China’s funding of major government buildings, construction projects such as the Suai expressway and national power grid, and the opening of the new port at Tibar Bay in 2022. In 2023, the two countries elevated their relationship to a Comprehensive Strategic Partnership, including provisions for military exchanges and cooperation, which has raised concerns among regional powers like Australia and New Zealand about China's growing influence.

Trade data illustrates a significant imbalance. In 2023, China was Timor-Leste’s largest export market and second-largest import partner, but exports were dominated by oil, which accounted for over 99% of goods sent to China. With oil production now ceased, Timor-Leste’s exports to China fell sharply in 2025 to just US$6.5 million, while imports surged to nearly US$157 million, contributing to a widening trade deficit. Similar patterns of trade deficits prevail with Indonesia and Australia, despite these neighbors being major import sources. Experts highlight this heavy dependence on imports and limited exports as a key economic challenge; at Timor Port, around 95% of outbound containers leave empty due to low export volumes.

Efforts to develop Timor-Leste’s non-oil exports focus heavily on agriculture, particularly coffee, the country’s leading non-oil merchandise export. Coffee growing involves about a quarter of households, but production is small and volatile, with exports reaching approximately 91,862 bags in the year to February 2024, far behind larger producers like Brazil and Vietnam. Entrepreneurs like Chen Lisong, a Chinese agricultural specialist who has worked in Timor-Leste for over two decades, are spearheading efforts to improve quality and market reach, including targeting China’s expanding coffee market, which currently imports only a small fraction of Timor’s coffee. Recently, the Chinese embassy provided funding to the Timor-Leste Coffee Association to support training and product development.

Despite these initiatives, challenges persist. Local producers face difficulties scaling to volumes demanded by large buyers, while competition with imported goods remains strong. The increasing presence of Chinese-owned small businesses in Dili, including restaurants and retailers, has sparked debate over their impact on local enterprises, with calls for more opportunities reserved for Timorese workers and entrepreneurs. The ethnic Chinese community, though relatively small as per the 2022 census, is believed by some local leaders to be much larger and instrumental in linking Timor-Leste’s economy to China’s.

Timor-Leste’s leadership has been pragmatic in balancing relations with China, Indonesia, Australia, and other partners to secure aid, investment, and technical assistance. Analysts caution against interpreting these ties solely through a geopolitical lens, emphasizing the country’s immediate economic and developmental needs. Australian support remains significant, accounting for a large share of official development finance alongside contributions from Japan, the US, and the Asian Development Bank.

A critical issue confronting Timor-Leste is job creation. With only about a third of its working-age population employed or seeking work, and a majority employed in informal sectors, the need to build a formal private sector is urgent. Programs connected to foreign companies, such as the Timor Port and bottled water producer Aqua Fresca — which has benefited from Chinese and Australian investment—are training and employing a growing number of Timorese. Additionally, educational exchanges like scholarships for Timorese students to study in China are expanding, aiming to build skills in trade and business that could foster local economic growth.

As Timor-Leste integrates into ASEAN since October 2025, the government’s ability to leverage foreign partnerships for sustainable economic diversification and inclusive development remains under close watch. The country’s young population and forthcoming exploitation of the Greater Sunrise gas field, now postponed to the mid-2030s, heighten the stakes for successfully transforming its resource wealth into broader economic opportunities.