Saved: Chinese bail out Rover for £1bn

MG Rover, the last remaining British-owned volume car-maker, is set to be rescued with the help of more than £1bn of Chinese cash. But the agreement with the Shanghai Automotive Industry Corporation (SAIC), which is due to be signed early next year, will mean that control of the Longbridge-based motor manufacturer will pass out of British hands.

A new joint-venture company will design, develop and produce cars. It will be 70 per cent owned by the Chinese and 30 per cent by MG Rover.

The deal comes as MG Rover's financial plight worsens. Its losses this year are expected to be more than £100m and its share of UK car sales has slumped to an all-time low of under 3 per cent. Huge damage has been done to the brand by accusations of boardroom greed and asset-stripping levelled at the four Midlands businessmen who bought it from BMW four years ago for a symbolic £10. Last week, a senior BMW executive called them the "unacceptable face of capitalism".

There will be separate British and Chinese companies to manufacture the new models in Birmingham and Shanghai but the key assets and intellectual property rights of the two car-makers will be contained in the Chinese-controlled joint venture.

The deal has yet to be approved by the Chinese government, although SAIC has already made a down payment of about £40m to MG Rover. Provided the deal comes to fruition, it will safeguard the 6,100-strong workforce at Longbridge and thousands more jobs in supply companies. The agreement envisages investment of between £1bn and £1.5bn in a series of new models and annual production of around one million cars, with about 200,000 of those to be built in the UK. Most of the investment will come from the Chinese company.

John Towers, the chairman of MG Rover's parent company Phoenix Venture Holdings, has begun briefing employees and dealers on the joint venture, telling them he expects it to be signed in January or early February. Mr Towers said: "The future of the company rests on this deal. It is absolutely critical. But we are confident we are going to bring it to the table."

He added that although the Chinese government had yet to sanction the joint venture, the benefits of the deal to both companies were so compelling that MG Rover was now certain it would go ahead.

"We reckon close to one million cars could be associated with the joint venture," said Mr Towers. "You can imagine the economies of scale and the much lower cost base which will come from that. There's a medium car, a small car, a large car and a sports car platform there as well." The first fruits of the joint venture will be a replacement for the Rover 45, which Mr Towers said would appear in the spring or summer of 2006. The other new models - including one to compete in the "super-mini" sector of the market alongside the likes of the Ford Fiesta and Vauxhall Corsa - would go into production about nine months later.

Mr Towers and the three other founding directors of Phoenix - Peter Beale, Nick Stephenson and John Edwards - have been criticised over a £16m pension trust fund set up for their benefit and a further £13m they stand to gain on top of their salaries from various other financial deals involving Rover assets.

China is one of the fastest-growing car markets in the world, with SAIC's output alone expected to increase to 3.5 million vehicles over the next five years. The government-owned car-maker is one of China's top three automotive groups with sales of £12.4bn. Last year it produced 600,000 cars.