Copies to Mr J. A. Lyons, Prime Minister, and Director of Naval Intelligence, Melbourne
Dispatch 98E (copy) BATAVIA, 14 July 1937 Received in Canberra n.d.
SECRET [on or before 18 August 1937]
I have the honour to invite your reference to my despatch No. 84E of the 17th June  and earlier correspondence relating to reports of Japanese efforts to secure a concession in Portuguese Timor.
2. In this connection, I have recently been informed in strict confidence by the Adviser for Far Eastern Affairs (Mr Lovink) that an employee of the Nanyo Kohatsu Kaisha lately stated to him that his company had come to an agreement to take over lands of the SOCIEDADE AGRICOLA PATRIA TRAVARYO of Dilli covering about 15,000 hectares, including 3,000 hectares of coffee lands, about 1,000 hectares said to be planted with rubber, and other lands suited for cotton cultivation. This Japanese informant was apparently about to be appointed Manager of a new filiale of the Nanyo Kohatsu Kaisha in Timor, to be known as the TIMOR GUNTO KOHATSU KAISHA (=Timor Archipelago Development Company).
3. In addition to agricultural activity, this Japanese informant stated, it is intended to make efforts to develop trade on the route Japan-Macao-Dilli. It is also, he said, intended to make Dilli a base for Japanese fisheries in this neighbourhood. This tends to confirm the anticipation made in paragraph 4 of my despatch No. 84 already quoted.
4. In connection with the present project for making Dilli a fishery base, Mr Lovink tells me confidentially that, some little time ago, a leading Japanese employee of the Nanyo Kohatsu Kaisha threw out a suggestion in conversation with a Dutch official that it would be useful for the development of Dobo if Japanese fishermen could establish a settlement there. The Japanese was advised not to pursue the suggestion seriously, and the matter dropped. From this fact, combined with the rapid increase of Japanese fishery activities in these seas in the last year or two, it may be assumed that much importance is attached by Japanese to the establishment of a fishery settlement, and it seems highly probable that an effort will now be made to make such a base at Dilli.
5. In view of the trouble which the activities of these fishermen have already occasioned to the Government of the Commonwealth of Australia, the prospect of a fishery base at Dilli furnishes a strong additional reason for the Government of Australia to take some such action as I have already suggested to secure a footing in Portuguese Timor.
6. In this connection, I may mention that, shortly after writing my despatch No. 84E, I took the opportunity afforded by the presence in Batavia on June 19th of Lord Huntingfield, Governor of Victoria, to have a confidential talk with him on the subject. Mr Staughton , the Australian concessionaire mentioned in previous correspondence, is incidentally a citizen of the state of Victoria, and is known to Lord Huntingfield. While Lord Huntingfield pointed out, naturally enough, that the matter was not one which a single state could well take up, he showed some sympathy with my suggestion, and said he would speak of it to the Commonwealth authorities on his return to Australia.
7. I have also sounded the Consul for Portugal at Batavia (Mr J.
A. van Staveren) on the general subject of Japanese activity in Timor, but he is clearly not very well informed on the subject. He is, indeed, inclined to discredit the press rumour quoted in my despatch No. 84E of the proposed establishment of a Japanese- Portuguese concern at Dilli, on the ground that a foreign company could not obtain a land concession in a Portuguese colony. In illustration of this, he says that Dr Cruz, the late Governor of Portuguese Timor, got into trouble with the Portuguese for promising so much to the Allied Mining Corporation.
8. Mr van Staveren further told me that, on a visit he paid to Timor some 6 or 8 months ago the subject of Japanese interest in Timor had come up in the course of a conversation he had with the Acting Governor.  Mr van Staveren had tried to impress on the Acting Governor the difficulties which, as experience in the Netherlands East Indies had shown, were almost certain to follow if Japanese were allowed to gain a footing.
9. As I have already reported, Dr Cruz will not return to Timor, and will be succeeded as Governor by Major Alvaro da Foutaura.
[sic] , who, as Mr van Staveren informs me, is due to reach Batavia on August 26th on his way to Timor. I have told Mr van Staveren that I should much appreciate a talk with the new Governor when he is on his way through, and should be glad if his stay in Batavia is sufficiently long to give me a chance to entertain him, in recognition of the hospitality shown to me at Dilli in 1935.
10. I am sending a copy of this despatch to the Department of Overseas Trade.