MG-ROVER'S proposed tie-up with the Shanghai Automotive Industry Corporation (SAIC) is causing anxiety among senior politicians who fear it could turn into an election banana skin if the deal hits problems.

Although MG-Rover confidently predicted last autumn that the deal would be delivered this month, so far there has been no announcement.

Hopes of an early settlement were sunk when SAIC commissioned an audit from a British-based engineering consultancy that suggested the MG-Rover K-Series engine - central to any deal - may not be as useful as first hoped.

The power units need extensive work to ensure they can meet tough new European emissions regulations.

More ominous still, although SAIC officials insisted dialogue was still going on, it seems the company may also be talking to Fiat.

MG-Rover is offering SAIC access to the technology it will require if it is to become a world player, but if Fiat is prepared to make a similar proposal, then the British deal could be dead in the water.

As one industry analyst put it: "Fiat is still a major player. It has more experience designing cars and the components that make them go than MG-Rover. It also has a bigger dealer network and greater global reach. If Fiat is making a play for the Chinese, they would be foolish not to listen."

According to recent Sunday newspaper reports, the rumours of a Chinese-Italian deal are causing jitters among Labour politicians.

They agree with Tony Woodley, general secretary of the TGWU, who said that the Chinese deal was the "only show in town".

MG-Rover needs a full partner to develop new models because it does not have the resources to replace an increasingly out-of-date range.

If the deal collapses, the company will have no one else to turn to.

Labour's nightmare is an approach for help by MG-Rover bosses on the eve of a General Election.

As one senior Labour MP said: "What do we do? Turn them away and watch thousands of people lose their jobs in the Midlands? Or do we bail them out and risk being accused of propping up lame ducks in the same way the party came to the rescue of Leyland in the 1970s?"

Perhaps that is why officials have instructed the British Embassy in Beijing to help keep the deal alive.

Reports suggest the Government may be willing to give SAIC up to £100m in development aid to help cement a workable agreement.

MG-Rover employs about 6,500 people in the West Midlands, while 50,000 to 60,000 jobs in support industries depend on the survival of one of Britain's last remaining mass car manufacturers. The plant produces about 130,000 cars a year and MG-Rover has fewer than three per cent of the UK market.

MG-Rover will only say that talks are ongoing and SAIC is happy with the K-Series engines. Its pronouncement that a deal was almost done caused a degree of irritation in China, where deals are never disclosed in public before they are signed, sealed and delivered. Since then, MG-Rover has preferred to do all its talking behind closed doors.

SAIC has also had problems of its own. The Chinese market has slowed dramatically and it is still assimilating SangYong Motor, the South Korean carmaker, it bought for $500m in October.

Mitsubishi Motors, which has been seeking partnerships to bail it out of its financial woes, will supply minicars to Nissan, both sides have said.

Tokyo-based Mitsubishi Motors will supply 36,000 minicars a year to Nissan, starting in the first half of fiscal 2005, which begins on April 1.

Nissan and Mitsubishi had said they were talking about a possible tie-up, and the agreement was not a surprise. Nissan, which does not make its own minicars, now gets minicars from Suzuki Motor Corp.

Minicars are too tiny for many parts of the world, but they are extremely popular in Japan as a cheap way of getting around crowded streets.

Mitsubishi Motors' sales have plunged in Japan and the US amid an auto defect cover-up that surfaced last year and the recall of thousands of vehicles.

The scandal has damaged the automaker's reputation because it came after it had acknowledged in 2000 a systematic cover-up of defects spanning decades and had promised to come clean.

Mitsubishi Motors has previously been supplying Nissan with 20,000 commercial minicars, and the latest deal covers passenger minicars.