MG Rover, Britain's last independent volume car-maker, is making a last-ditch gamble on its profitable survival and the future of 6,100 jobs at its Longbridge site near Birmingham by setting up a joint venture with Shanghai Auto, China's largest auto manufacturer, to produce a range of new models.

The loss-making company confirmed yesterday that it hopes to get central Chinese government approval in early January for the joint venture that will see up to £1bn injected by Shanghai Auto (SAIC) into the new models in return for a 70% controlling stake in the new company.

Loss-making Rover, which has seen its European market share slump to 1% in the first nine months of this year, is confident it will secure the deal but industry sources are concerned that the latest revelations over its owners' lucrative salaries and pension fund could jeopardise it at the last moment.

There are also fears that, while the long-awaited new models will initially boost output at Longbridge from 110,000 a year closer to the 200,000, guaranteeing economic viability, the Chinese, who will produce 800,000, could eventually decide to produce the entire range by themselves and export to the rest of the world, including Britain.

Daniel Ward, Rover's chief spokesman, confirmed that SAIC would have about 70% of the partnership which would own the intellectual property rights for the designs of the new cars. But the new company would not take over Rover or Phoenix Venture Holdings, its owners; it would have a "relationship" with Rover that would be defined in January's formal agreement.

Tony Woodley, leader of the TGWU union and an architect of Rover's rescue when it was threatened with closure by BMW, its then German owners, in 2000, said: "I believe they [the Chinese] are serious and are not just talking a good deal; there's money up front, around £40m, and in the end it will be hundreds of millions but £1bn is ludicrous.

"It's a tremendous opportunity and I can see the benefits for the Chinese as it's the first time they are making a serious investment outside their country ... I don't see anything that doesn't mean new models for Longbridge but we are talking some two or more years down the road and that's tough for Rover in its current state."

Rover said the joint venture's first model, a new medium-sized car, which will replace the R45, should be on sale in mid-2006 or at least three years after it was first promised when the so-called Phoenix Four, a consortium of west Midlands businessmen, bought the company from BMW for £10 in May 2004.

SAIC have insisted on a more ambitious design, it is said, further postponing the car's launch after delays forced upon Rover by the collapse of its engineering partner, TWR, and the failure of proposed joint ventures with China Brilliance and Malaysia's Proton.

It will be followed by a new small car replacing the R25 and competing with the likes of the Ford Fiesta, an executive car to replace the R75 and a new sportscar.

Mr Ward said these would all be designed and developed by Rover's in-house team at Longbridge as SAIC did not have such expertise. "What they are interested in is a world class design and development capability and access to a global dealership network."

He insisted that Rover, which last week won a high court ruling that its "jobs for life" agreement did not forestall compulsory redundancies, could not give guarantees that all Longbridge jobs would be saved. John Towers, Rover chairman, said the new models could be on the road in 14 months. "All the work associated with the the joint venture is going on, funding, the provision of people, the engineering development," he told BBC TV.