Chinese poised to approve £1bn rescue of MG Rover

A deal to rescue MG Rover from closure appeared imminent last night after it emerged that formal approval for its joint venture with Shanghai Automotive Industry Corporation (SAIC) will go before the Chinese government within days.

A deal to rescue MG Rover from closure appeared imminent last night after it emerged that formal approval for its joint venture with Shanghai Automotive Industry Corporation (SAIC) will go before the Chinese government within days.

The breakthrough came as the Chancellor, in China for a three-day visit, met the head of the country's powerful National Development and Reform Commission and pledged UK government support for the MG Rover-SAIC alliance.

In another development, it was disclosed that a second Chinese car maker, Nanjing Automotive, is to take a stake in the proposed joint venture and will build MG Rover vehicles at one of its plants in China.

A joint statement from Gordon Brown and his opposite number at the Chinese Finance Ministry was due to be released last night outlining the progress made in sealing the MG Rover alliance. The statement, the first official comment from the Chinese authorities on the deal, was expected to say that talks were now well advanced, that both governments supported the alliance and that the feasibility study into the joint venture was "within days" of being submitted to Beijing. Although not a formality, Chinese government approval for the deal is now seen as almost certain.

Mr Brown told the Chinese that included in the aid package the UK government could provide was a deferral of VAT payments and help with training costs for the joint venture. Such assistance does not require approval under the European Union's state aid regime.

Earlier in the day, Mr Brown said the UK government would do "what we can in making this partnership successful". On Monday, during his first day in China, the Chancellor said he hoped the joint venture would be brought to a conclusion "soon, to the benefit of the British motor industry".

The alliance between SAIC and MG Rover is likely to involve the Chinese taking a 70 per cent stake in the joint venture and injecting £1bn for product development, safeguarding the future of the Longbridge car plant and its 6,000 workers.

It has now emerged that Nanjing Auto will also take a stake. Reports in the Chinese press said it would have a 20 per cent shareholding in the joint venture and would build a version of the Rover 45 while SAIC would make the Rover 25.

The plan is for the joint venture to produce around one million cars a year, 800,000 of which would be for the Chinese market and 200,000 of which would be built at Longbridge for the UK and European markets.

A spokesman for SAIC said last night that the inclusion of Nanjing Auto in the joint venture had been under contemplation for some time. "Nanjing Auto has production assets which, if utilised, could reduce our investment and risk. We do not expect it to have any impact on MG Rover or Longbridge."

Go ahead for the deal will in effect mean control of MG Rover passing into Chinese hands. But it will also deliver a lifeline for the embattled car maker, enabling it to develop a new mid-sized model to replace the Rover 45 and further models to replace the smaller Rover 25 and the top-of-the-range Rover 75.

Production at Longbridge has fallen by more than half since MG Rover was bought from BMW for a symbolic £10 five years ago by a group of West Midlands businessmen dubbed the "Phoenix Four". Last year the plant produced just 110,000 cars. At the same time the owners of the company have run into a storm of criticism over the tens of millions of pounds they have made from it.