Talks with Shanghai Automotive Industry Corporation (SAIC) about a deal thought to be worth up to £1bn to MG Rover have been taking place since last year.
MG Rover described The Times report as "utter rubbish" and said it was confident of reaching an agreement.
The Department of Trade and Industry (DTI) said the report was inaccurate.
The Times said the government feared the deal may collapse without the cash, threatening 60,000 jobs.
The UK embassy in Beijing had been set to offer a "sweetener" to SAIC for signing the deal, it was claimed.
But a DTI spokesman says: "It is wrong to suggest any kind of instruction has been given to embassy officials.
"The Government supports the British automotive sector but we are not going to go into any details of individual companies or any commercially confidential dealings."
Under the planned joint venture state-run SAIC will inject cash into Rover in exchange for a majority stake in the firm and access to its technological expertise.
SAIC, which makes cars for both Volkswagen and General Motors in China, last year bought South Korea's Ssangyong Motor Company.
Under a venture with MG Rover, cars would be made at both Longbridge in Birmingham and in China.
Rover is hoping to launch new models on completion of the deal, including a replacement for its medium sized car, the Rover 45.
"We are working hard to conclude the deal, and we are very confident," the MG Rover spokesman said.
MG Rover said a technology transfer agreement had already been signed with SAIC in August.