MG Rover said today that it and China’s Shanghai Automotive Industry Corp (SAIC) remained committed to a successful outcome to talks on a carmaking joint venture.

"I want to underline the continued commitment from ourselves, and from SAIC, for a successful outcome to our joint venture," John Towers, chairman of MG Rover, said.

The deal is crucial for the survival of MG Rover which has been struggling to break even after being sold four years ago.

The statement followed reports last night that the rescue talks had stalled, throwing the future of the company and up to 20,000 jobs into doubt.

The Department of Trade and Industry admitted that talks between its officials, who flew to China last week to broker a last-minute joint-venture deal with SAIC, had failed to find an agreement. A DTI source said: "MG Rover’s finances are worse than either SAIC or we had thought. There still remains a question mark over its solvency even if the deal is done."

Solvency fears were heightened after a report commissioned by the Chinese claimed that MG Rover was due to become insolvent at the end of last week.

While the prospect of a £100 million government loan remains on the table, albeit not a formal offer, officials will remain in China for the next few days even though SAIC is understood to have told MG Rover to come up with a new plan.

"Members of both companies have been working non-stop over the past week to create outcomes to our complex joint venture agreements," Mr Towers said today.

He said MG Rover had been providing every assistance, including "extensive personal commitments" to enable the deal to go ahead. It is believed that this refers to guarantees from the directors to underwrite the Government's loan.

The breakdown in the talks last night had come as West Midlands business groups were preparing contingency plans amid fears that up to 20,000 jobs could be lost if the rescue deal for MG Rover fails and the company collapses. It is feared that the group, which employs 6,100 at its factory in Longbridge, Birmingham, could become insolvent within days, although the company insists that it remains solvent. MG Rover supports about twice as many jobs in components companies and the local economy.

If it becomes insolvent, it would be hit by liabilities thought to include a £400 million pensions black hole. It could also become liable to repay the £500 million loan that BMW, its former owner, gave it in order to keep it going. SAIC wants MG Rover to prove it can remain solvent for two years, by which time it hopes cashflow would increase because of the introduction of a planned new medium-sized car.

If the Government is to make a formal offer of a loan, it must act before the impending dissolution of Parliament. Any offer during the dissolution of Parliament requires agreement from all the main political parties.

Fears of large job losses will be damaging for Labour in a general election as it fights to hold several West Midlands marginal seats.

Small and medium-sized makers of parts would be worst hit in the fallout, and the impact would be worse than if one of the carmaker’s larger rivals were to fail. Garel Rhys, of Cardiff University, said: "MG Rover uses proportionately more British-sourced components than many of its competitors at about 65-70 per cent, compared with 20 per cent at somewhere like Peugeot. So if it it were to fail, the impact would be like that of a carmaker making three times as many cars as Rover produces."

Ian Smith, chief executive of the West Midlands Engineering Employers Federation, said hundreds of small companies would be hit, along with big names such as GKN and Thyssen. Mr Smith said: "There is work going on to see what support we can offer."