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MG Rover's China deal on brink of collapse

MG Rover's proposed joint venture with China Brilliance, which was to have delivered a new medium-sized model, is on the brink of collapse after the Hong Kong Stock Exchange suspended trading in the Chinese firm's holding company.

The Liaoning provincial government is in talks to buy control of the automotive division from Chinese Financial Education Development Foundation. Top management at China Brilliance may also purchase a stake from the foundation, according to a company statement.

Concern at the deal surfaced earlier this year when Brilliance chairman Yang Rong – the key figure in the MG Rover tie-up – left the company amid rumours of alleged financial irregularities. The Chinese Government is keen to interview Rong, who has left the country and is now thought to be in the US.

Professor Garel Rhys of Cardiff Business School believes that even if the deal does collapse it would not be the “end of the world” for MGR.

“I think that whatever happens to China Brilliance, MG Rover is thoroughly insulated because they are being paid for what they do,” he says. “The core MG Rover activity is the five-year recovery plan and this China Brilliance deal is incremental to it – not fundamental.”

MG Rover is now distancing itself from the joint venture, claiming there has already been progress in creating a replacement for the 45.

“We still have the business opportunity and will be monitoring the situation very carefully,” says a spokesman.

“We are still some way off starting the production of vehicles under this agreement anyway: we are talking about 2005 at the earliest.”

In a further setback, MG Rover has revealed that losses at its core car manufacturing division totalled £227.3m last year on turnover of £1.3bn, higher than the £187m loss posted by parent company Phoenix Venture Holdings. Interest payments on loans are also up, from £192m in 2000 to £337m last year. However, the company is close to concluding discussions with Indian manufacturer Tata to produce a supermini based on the Indica. It is also negotiating for the purchase of GM-Daewoo's FSO-Daewoo plant in Poland, which could build the Rover 45 replacement.

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