When MG Rover went into administration two years ago, Nanjing Auto unexpectedly bought the company from under the nose of its rival, Shanghai Automotive Industry Corporation (SAIC).

SAIC had already bought the intellectual property for some of the UK car manufacturer's models and the Rover name, and had threatened to challenge Nanjing's purchase. But pressure is growing for the two companies to co-operate rather than compete over MG Rover.

SAIC has launched its own-brand version of the Rover 75, the Roewe (meaning " honour and prestige"), in China. Nanjing Auto has also started manufacturing MG cars in China this year and plans to do the same at MG Rover's former factory in Longbridge in the Midlands.

Nanjing also announced that it would start making MG cars in a new factory in Oklahoma. But state media reports in China have claimed that the company does not have the money to press ahead.

The Chinese government is also understood to be unhappy at the prospect of two companies owned by regional governments competing against each other.

SAIC's chairman, Hu Maoyuan, said before this weekend's Shanghai Auto Show: " I can declare we are looking forward to co-operation with Nanjing Autos.

"We need to use state assets more efficiently and effectively. We believe the leaders of Nanjing Auto are smart enough to understand this principle. I believe the government would be glad to see such cooperation."

A spokesman for Nanjing said: "It has been known for some time that the Chinese government wants to consolidate the number of manufacturers in the industry. I can't confirm if the companies are in detailed talks."