Nanjing Automobile and Shanghai Automotive Industry Corp. are discussing co-operation to build MG Rover models in China, sources close to the companies told Automotive News Europe.

But the talks are bogged down. Nanjing expects China’s central government to intervene eventually and force the two companies to co-operate, a supplier source added.

Officially the car makers denied they are negotiating, but a Nanjing executive tacitly acknowledged the two sides are talking.

“We don’t have anything to announce to the press,” he said. “The time is not yet ripe to make a public announcement. These matters are very delicate. I believe you understand my meaning,” he added.

The two Chinese automakers are rivals. As early as 2001, Shanghai Automotive wanted to buy the much smaller Nanjing to gain additional manufacturing capacity. But the government of Jiangsu province, part owner of Nanjing, did not want give up the automotive manufacturer. Nanjing attracted new investors and announced plans to triple sales and expand its capacity, blocking SAIC‘s plans.

But the rival claims over British car maker MG Rover mean that co-operation is almost inevitable. SAIC has rights and tooling for the cars, but no production source for engines. Nanjing controls the engine production equipment, but its rights to both the engines and the MG versions of the Rover cars are ill-defined.

Last year, SAIC bought the intellectual property rights to the Rover 25 and Rover 75 sedans plus several MG Rover engine families. Before MG Rover collapsed in April, SAIC also intended to buy the Powertrain division of MG Rover, which had the production line needed to manufacture the engines.

But in a coup, Nanjing Auto won the right to buy Powertrain from the UK administrators overseeing MG Rover’s bankruptcy proceedings.

Nanjing already has sent more than 60 engineers to the UK to begin dismantling the engine manufacturing line for shipment back to China.

Nanjing recently signed a technical agreement with Malaysian engine specialist Petronas.

Meanwhile, SAIC claims it will build the engines without Nanjing’s help at a new engine plant currently under construction near Shanghai. Many feel that SAIC’s claim is a ploy to force Nanjing to negotiate on SAIC’s terms.

“Eventually [Nanjing managers] plan to cooperate,” said a SAIC manager. “Nanjing won’t be able to make the car by itself. They need Shanghai Automotive.”

But Nanjing has a few negotiating tricks of its own. A supplier source close to the company said that Nanjing executives have been meeting with executives from First Auto Works Group, a major rival to SAIC. First Auto has joint ventures with Volkswagen and Toyota.