Talks designed to save MG Rover have stalled after China's state-owned Shanghai Automotive Industry Corporation learned full details of the manufacturer's dire financial situation.
Officials from the Department for Trade and Industry have been in Shanghai for the past four days to try to finalise a joint venture agreement between SAIC and Birmingham-based MG Rover, which employs 6,000 people at Longbridge.
However, it has become clear that the firm's financial position is worse than the Chinese or the British Government had realised.
Even if a deal was agreed, it is likely Phoenix Venture Holdings, MG Rover's parent company, would remain technically insolvent.
The Chinese are looking to Phoenix Venture Holdings to come forward with new proposals. In the meantime, talks with the DTI officials have been suspended.
The British Government's offer of a £100 million " bridging loan" to help MG Rover remain solvent remains on the table. The four Phoenix directors have also been asked to contribute several million pounds of their own money towards keeping the company solvent, partly as a result of claims they enjoyed generous financial packages since buying the ailing car giant for £10 from German car-maker BMW in 2000.
The MP, representing Longbridge, insisted last night he was still hopeful a deal would be made.
Richard Burden ( Lab Northfield) said: "I am still hopeful that it will happen."
He was speaking after reports that a confidential Ernst & Young report - commissioned by SAIC - showed the Birmingham
manufacturer would be insolvent by the end of last week.
It has also been suggested that two other reports, one by KPMG commissioned by the Government, and another by Deloitte on behalf of Phoenix, reached similar conclusions.
Mr Burden said: "The deal makes as much sense as it did on Friday.
"MG Rover need it to produce a new model and SAIC need it to gain access to MG Rover's technology and knowhow, and to the European market."
An MG Rover spokesman denied the claims last night. He said: "It is not correct that we were set to become insolvent on Friday."
The company was not releasing further details about its financial situation, he said. "We are still confident that a deal will go ahead."
Asked whether the Phoenix directors had agreed to contribute funding from their own pockets, he said: "All four directors are absolutely committed to making a success of this venture."
The DTI had not asked the directors to contribute a specific sum of money, he said.
The bridging loan would be provided under strict criteria to ensure the proper use of taxpayers' money, according to the DTI.
Ministers are known to be concerned that they could be criticised for offering support to Phoenix, particularly as significant job losses are expected at Longbridge whether the deal goes ahead or not.
As well as the Longbridge staff, thousands of West Midlands workers in the supply chain rely on MG Rover for their jobs.
The crisis is coming to a head at the worst possible time for Labour, with Tony Blair expected to announce a General Election today.