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Government to offer MG Rover 'sweetener'

Ministers are promising MG Rover’s would-be Chinese partner a £100 million to prevent the collapse of a proposed rescue deal for the Midlands carmaker.

It is understood that officials have instructed the British Embassy in Beijing this week that the Shanghai Automotive Industry Corporation (SAIC) should be offered sweeteners for signing a partnership agreement with MG Rover.

Patricia Hewitt, the Trade Secretary, and John Prescott, the Deputy Prime Minister, are said to be alarmed that MG Rover’s latest attempts at a partnership — its third since its rescue five years ago — may unravel before the election.

Government money would take the form of development aid, but it could still fall foul of European regulations.

Labour is worried about losing seats in Birmingham. The Government is also sensitive to attacks from trade unions that claim that it has done little to prevent the shrinking of Britain’s manufacturing base.

A crisis around MG Rover would be a huge embarrassment before an election that is expected in May.

SAIC, one of China’s biggest carmakers, has been in talks over collaboration with MG Rover since last summer, but a final agreement has been elusive and hopes have been dampened after SAIC commissioned an audit from an engineering consultancy that cast doubt on the benefits of the deal. It is believed that talks between the two sides have centred in recent months on MG Rover’s engine capabilities and, in particular, its K-series engine. SAIC, which produces cars in joint ventures with Volkswagen and other Western carmakers, is keen to develop its own car by utilising the British firm’s engine technology expertise.

However, it is thought that Ricardo, a British consultancy that works for all the big car companies, recently concluded that only parts of the Rover’s K-series engine would be useful. This could severely limit the extent of the partnership.

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