Auto Co. Seeks China's Approval for MG Rover Merger

SHANGHAI, China February 23, 2005; The AP reported that Shanghai Automotive Industrial Co. is preparing to submit plans to acquire ailing British automaker Rover in the next few days, British Treasury chief Gordon Brown said, wrapping up a visit highlighting London's eagerness to boost trade and other cooperation with China.

Meanwhile, the two sides signed an agreement Wednesday on taking joint action to curb an illicit trade in counterfeit cigarettes that Britain says costs it 500 million pounds (US$950 million; euro700 million) in lost tax revenues and duties a year.

During his three-day visit, Britain's chancellor of the Exchequer expressed support for China's currency policies, agreed with Beijing on reforming international financial institutions and pledged help for the country's developing financial markets.

The agreement on curbing the illicit trade in counterfeit cigarettes calls for the two sides to share information and technology for identifying fakes. Britain believes about half of the bogus cigarettes smuggled into the country originate from China.

"This new relationship, and the deep and broad engagement that is opening up (between the two countries) involves responsibilities as well," Brown said.

He visited a British do-it-yourself store, B&Q, in Shanghai's new financial district Wednesday morning before traveling to the southern boomtown of Shenzhen.

On Tuesday, Brown said Shanghai Automotive -- also known as SAIC -- planned to present a joint venture feasibility study with MG Rover Group in the next few days.

The Shanghai automaker, which has major joint ventures here with General Motors Corp. and Volkswagen AG, reportedly plans to invest up to 1 billion pounds (US$1.9 billion; euro1.4 billion) in a 70 percent stake in Rover.

SAIC, China's largest state-run automaker, has refused comment on the deal.

The acquisition requires approval from the Shanghai city government, SAIC's controlling shareholder, and the National Development and Reform Commission -- a Cabinet-level agency in charge of economic policy.

The Chinese company, SAIC signed a cooperation agreement with Rover in June.

Brown told journalists that Chinese officials he met with in Beijing were enthusiastic about the planned acquisition.

The British government, keen to avoid more job losses ahead of an upcoming general election, is hoping the deal would help preserve employment for 6,000 Rover workers. Brown said he hadn't seen SAIC's study, and didn't know if it entails any layoffs.

"I think both the government of China and the British government welcome the idea of this proposed alliance," he said, refusing to comment further.

"Rover is a private company, and these are commercial negotiations, and it's not for this government to comment on them at a sensitive time," Brown said.

Brown's visit to Shanghai took on added importance given Britain's desire to boost trade in financial services such as banking and insurance.

Brown promised British help for China in setting up its own corporate bond and associated derivatives market and urged more Chinese companies to list shares on the London Stock Exchange.

"Financial services is clearly an area where China welcomes our expertise," Brown said.

Britain recorded a trade deficit of 8 billion pounds with China in 2004, but enjoyed a surplus in financial services trade.