Mr Gusmao met China's top leaders in the first visit by an East Timorese Prime Minister in 11 years.
In a joint statement, the two nations vowed to increase cooperation on issues from security to food production. China is enjoying relative economic and diplomatic success with Australia's near neighbour, at a time of heightened suspicion between Canberra and Dili.
Correspondent: Karon Snowdon
Speakers: Clinton Fernandez, Associate Professor in International and Political Studies at the University of New South Wales; Estanislau da Silva, former Deputy Prime Minister and Opposition Member of East Timor's Parliament
Snowdon: Despite their closeness – both geographically and historically, its not a good time for East Timor and Australia relations.
They're locked in a bitter international court battle over the multi-billion dollar Timor Sea resources and allegations of spying levelled against Australia.
Opposition Fretilin Member of East Timor's Parliament Estanislau da Silva, is a former Deputy Prime Minister. He says East Timor has always sought to have a wide range of friends in the region.
Da Silva: Of course, we have neighbours, like Indonesia and Australia, but we also want to have a very close relationship with other continents, and particularly, China, China has been very, very supportive.
Snowdon: China was one of the few countries to support East Timor's fight for independence against Indonesia and one of the first to recognise the new nation in 2002.
It's a close relationship and becoming stronger says Clinton Fernandes, Associate Professor in International and Political Studies at the University of New South Wales.
Fernandez: The reason China engages with Timor is that it's part of its broader strategy of engaging with the community of Portuguese language nations, that community of nations, just by coincidence happens to have a lot of resources and what China does is it takes a strategic approach by engaging with that community of Portuguese language nations as a whole and Timor fits into it as part of that.
Snowdon: Although relations have been strained recently, Prime Minister Xanana Gusmao spent three days in Australia just over a week ago.
He was the keynote speaker at a function for a benefit fund which helps former members and families of Australia's Special Air Services, the SAS. Estanislau Da Silva says his visit is a sign the arbitration case hasn't damaged the relationship with Australia.
Da Silva: So I think we are still friends, there is nothing that will endanger our relationship, so, of course, China is welcome to get into Timor Leste, as well as Japan, Australia, Indonesia and other countries as well, so we don't specifically want to rely our country, to be hijacked by any particular country.
Snowdon: As other nations do China uses soft diplomacy and has been investing in East Timor – it built the Presidential Palace, the army barracks and has provided patrol boats. Its bid to provide a radar system about five years ago and for the reallocation of oil and gas contracts in its favour were rebuffed.
Clinton Fernandez says as a small country Timor needs lots of friends. He believes the spying allegations in particular have been damaging to the bilateral relationship with Australia.
Fernandez: Definitely, people don't seem to appreciate the extent to which it has corroded the bilateral relationship. The suspicion, the resentment at being on spied on in addition to what they feel is their own fair resources of the oil in the Timor Sea being taken by Australia, that affect has been quite considerable at very much every level of East Timorese society.
Snowdon: At least in my reading of things, there hasn't seemed to have been the same fear sent China's way. There's never been a question there about East Timor being concerned about China's propensity for spying?
Fernandez: Interesting, isn't it, sure. They look at China as a country that during the darkest part of Timor's history, the late 1970s, China voted for Timor in the Security Council, Australia abstained. They look at China as a country that's assists their military, builds infrastructure, and doesn't seem to be interested in spying on it, and therefore, the perceptions very different.