Gordon Brown yesterday signalled a crucial deal between MG Rover and China's Shanghai Automotive Industry Corporation was close to completion.
The proposed joint venture would safeguard thousands of jobs at MG Rover's Longbridge plant in Birmingham.
In negotiations with the Chinese government Britain is believed to have offered a "sweetener", probably deferring VAT payments from the company, to make the package more attractive. That would save SAIC from having to pour millions into the company immediately after purchase.
The chancellor pressed the case for the joint venture, 70% of which would be owned by SAIC, in meetings with the Chinese premier Wen Jiabao and Ma Kai, head of the government body that will make the final decision on the deal.
"The next step following agreement between the two companies will be for the Shanghai company to submit to the Chinese government a full feasibility study to follow up on the detailed work to be done. I understand these papers may be submitted within the next few days," Mr Brown said yesterday.
"I think both the government in China and the British government welcome the idea of this proposed alliance. I find people enthusiastic about this." But he declined to enlarge on how many of the 6,500 jobs at MG Rover's West Midlands car plant would be saved by the new venture, which would manufacture Rover-branded cars at Longbridge and in China.
SAIC already has a controlling stake in a struggling Korean carmaker, Ssangyong, and an existing joint venture, Shanghai Volkswagen, has seen sales fall by more than 10% in the past year.
Mr Brown said yesterday that it would be inappropriate to disclose further details as negotiations were at a sensitive stage. He added: "Issues relating to individual companies' tax affairs are a matter for the Inland Revenue and Customs, not ministers. However, discussions by Rover and Customs have been helpful and Rover can benefit from flexibility in the tax system."
Asked whether the government was going further in assisting the car firm, he pointed to the "huge amount of help" already given to the West Midlands and added: "We are bound by the state aid rules of the European Union."
There has been speculation that even with a deal as many as 3,000 jobs could be lost at Longbridge.
Tony Woodley, leader of the TGWU, told Radio 4's Today programme yesterday: "At this very delicate stage it's a question of who gets what as far as production is concerned. There's only one game in town here. Our members understand that without investment and Shanghai Automotive there will be no plant and absolutely no jobs."
The chancellor, who was on the second day of his visit to China to boost trade links, also announced yesterday that he expects half a million Chinese tourists to visit Britain each year by 2020 - which could generate half a billion pounds a year - compared with 68,000 in 2003. Beijing recently granted the UK approved destination status, making it easier for its citizens to holiday in Britain.
Other agreements include a deal under which UK Customs officers will train Chinese officials to slash the number of counterfeit cigarettes smuggled into the UK. Mr Brown also announced plans to increase the bilateral trade in financial services from £260m in 2003 to almost £1.5bn by 2010.
