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Last Updated: Sunday, 3 April, 2005, 19:25 GMT 20:25 UK
China deal 'only hope for Rover'
Aerial view of Longbridge
About 6,000 are employed at Rover in Longbridge, Birmingham
UK Trade Secretary Patricia Hewitt has said talks between Birmingham-based MG Rover and China's biggest car maker are the 'only hope' for the UK firm.

Her officials have gone to China for last-ditch talks with Shanghai Automotive Industry Corp on a 1bn investment in MG Rover.

Meanwhile, MG Rover has denied a report it has a 400m hole in its pension fund that is jeopardising the deal.

A spokesman for the company said the figure was "completely misleading".

The firm had acknowledged a pensions shortfall of 67m in its 2003 accounts published last October, MG Rover communications director Daniel Ward told the BBC news website.

He declined to say how close to running out of cash the company really is.

State aid

Over the weekend, the UK government has said it is ready to offer MG Rover a bridging loan - widely reported to be 100m - to keep it afloat long enough to clinch investment from China.

According to the Observer newspaper, an outline deal has been ready for weeks but has not been signed because the Chinese firm fears MG Rover could soon go bust, leaving it to shoulder pensions liabilities. It put the shortfall at 400m.

The paper quoted an adviser to SAIC as saying a new loan "may give everyone more time to negotiate the deal" but "if, as seems likely, Rover is close to insolvency, it does not mean the deal will be done".

SAIC representatives in London could not be reached for comment.

Election pressures

"We want to see this deal succeed", Ms Hewitt told BBC WM radio on Sunday, adding it "really is the only hope for Rover and thousands of skilled workers in the West Midlands".

A report in the Financial Times said the loan had been approved by Prime Minister Tony Blair and Chancellor of the Exchequer Gordon Brown, though Department of Trade and Industry officials insist it has not yet been formally agreed.

Birmingham could be an important battleground in the forthcoming general election as it has several marginal seats.

MG Rover employs about 6,000 workers at its Longbridge plant in Birmingham, and dozens of West Midlands engineering firms depend, at least partly, on supplying MG Rover, Britain's last surviving mass car maker.

Unease in Whitehall

The loan plan seems to be causing controversy in Whitehall, where it is viewed as misguided by top officials at the DTI.

"The decision to do it is a political one; the economic arguments don't stack up," the Sunday Telegraph quoted one DTI official, who did not wish to be named, as saying.

Chancellor Gordon Brown visited China in February, where he vowed to do everything possible to secure a tie-up between MG Rover and SAIC.

Under the proposed deal, the Chinese firm would inject cash into MG Rover to help it develop new models; in return it would secure rights to Rover's more advanced technology.

Any deal is expected to involve the creation of a new joint venture company 70% owned by SAIC which could take time to set up.

MG Rover was bought for 10 from German car maker BMW in 2000 by a consortium of West Midlands businessmen led by John Towers.

Why the government has intervened

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