Revealed: Rover director's mysterious lover Qu Li's links to the Chinese firm that 'lifts and shifts' the British motor industry

By Jason Lewis
Last updated at 11:50 PM on 26th September 2009

Connections: Dr Qu Li with her father, who was a senior official at a Chinese car firm

Father and daughter stand side by side in front of an anonymous building. He smiles proudly for the camera while she looks awkward, demure and slightly embarrassed.

But this ordinary snapshot, taken a decade ago and never published before, raises new questions about the demise of Britain’s once-powerful car industry.

For the lady in the bright red anorak is Dr Qu Li, the mysterious and glamorous Chinese woman fixer who was paid £1.7million as a consultant to MG Rover at the same time as she was having an affair with Nick Stephenson, one of its directors.

But The Mail on Sunday can reveal that her father was for many years a senior official at the Chinese car firm that scooped up the historic British company’s discounted assets – including the rights to the famous MG sports car – in a so-called ‘lift and shift’ operation after the company collapsed.

The disclosure, which is missing from the recent 850-page Government report into the collapse of the former car giant, will prompt fresh concerns about Labour’s handling of the affair, which cost more than 6,000 UK jobs.

And it also casts doubts on the thoroughness of the Government’s subsequent official investigation, carried out by a top City accountant and a leading QC, which cost the taxpayer £16million.

The report, which took four years to produce, attempts to portray Dr Li as little more than a translator and questioned why she was paid so much for her 15 months’ work.

But in largely dismissing her importance, the report also glosses over how Dr Li – who associates claim was unusually granted dual British and Chinese passports – was able to move effortlessly in and out of China with the Rover executives as negotiations continued to find a Chinese partner to keep the UK plants going.

Last night, a source close to Dr Li even spoke of ‘strange forces at work’ trying to paint her as an agent provocateur.

MI5 has recently warned of the dangers posed by Chinese state-sponsored industrial espionage.

Today, Dr Li shares a sprawling £500,000 farmhouse in Studley, Worcestershire, with divorced John Killick, 51, a senior executive at Bentley.

Her supporters suggest smears against her could be motivated by her current role in negotiations to sell collapsed Midlands-based van maker LDV to China in another ‘lift and shift’ deal that will see manufacturing end in Britain.

Birmingham-based LDV, owned by oligarch Oleg Deripaska, a friend of Business Secretary Lord Mandelson, shut down last June after the Government refused to sanction loans to keep the plant open.

Well rewarded: Dr Li earned £1.7million for 15 months' work at Rover, working as a consultant

Dr Li is now reportedly negotiating a reputed £8million buy-out through the firm’s administrators on behalf of an unnamed Chinese car company.

Last week, in a carefully orchestrated interview with the Financial Times, Dr Li said she had been ‘stoned to death’ twice over, by the contents of the Rover report and the public scrutiny of her affair with one of the Rover directors.

‘If I was male, it would have been quite different,’ she said.

Now new details of Dr Li’s personal links to the Chinese firm that benefited from MG Rover’s collapse can be revealed.

Last night, Dr Li’s spokesman rejected any suggestion of a conflict of interest and said she had made no secret of her close connections to the Chinese car industry.

He added that she had been ‘fully committed to saving Rover as a British car maker’ and had been ‘devastated’ when it failed.

But questions remain. Dr Li was hired as a consultant as MG Rover tried, unsuccessfully, to negotiate a deal with the Chinese motor industry to save the 110-year-old car giant.

The Government’s damning report criticises the large fees paid to her and attacks MG Rover directors – the so-called Phoenix Four, who awarded themselves huge salaries while overseeing the firm’s demise in 2005.

The four – Stephenson, John Edwards, 57, Peter Beale, 54, and John Towers, 61, paid themselves nearly £36million during the five years they ran the company.

The report also reveals how Dr Li, 45, was having an ‘intimate relationship’ with MG Rover director Nick Stephenson, 61, who had hired her.

It goes into great detail about the affair between Dr Li and Stephenson, who earned almost £9million in salary and benefits during the five years he helped to run MG Rover.

But what the report does not say – nor will the Government or the investigators discuss the omission – is that Dr Qu Li is the daughter of one of the most influential managers behind Nanjing Automotive, the Chinese vehicle maker.

Nanjing purchased the assets of the defunct Rover Group from the official receiver for a knock-down price of £53million in 2006, reviving the MG sports car brand but moving most of the production to China.

The Nanjing company then hired Dr Li and her former lover Stephenson to advise them on the removal of the production lines from the Midlands car factories for reassembly in China.

The car firm, like its rivals throughout China, is ultimately controlled by the country’s Communist government, and its structure is not clear-cut.

Bright: Dr Qu Li, pictured here in 1995, came to Britain in 1990 to study for a PhD at Leeds University

At the time it purchased MG Rover’s assets, the company boasted 14,000 employees at its plant in the city of Nanjing, 300 miles from Beijing. The Chinese plant had the capacity to produce 200,000 vehicles a year.

Shortly after the MG Rover purchase, the company was merged by government officials with the larger Shanghai Automotive Industry Corporation, which had also been interested in bidding for the British company.

The Mail on Sunday has established that Dr Li’s father, named in China as Li Si-jiu and described locally as one of the Nanjing car company’s founders, for many years held the title of chief engineer.

Others describe him as a ‘company dignitary’ who was responsible for the growth and modernisation of the company and whose advice is still sought by the firm’s current management.

Dr Li’s mother is also said to have played a key role in the development of Nanjing’s car industry, heading the city’s welding institute.

Unlike their Western industry rivals, the Li family never grew wealthy on the firm’s success. Instead, they worked hard and for long hours for the good of the party, and now live on a company pension and in a company-provided flat.

One former close business associate said Dr Li had told him that her parents had been involved with the Nanjing car firm – which was set up in 1947 as a repair service for the East China Field Army, part of the Red Army – for more than 50 years.

But according to the long-time associate, China’s Cultural Revolution – which attempted to re-educate the nation’s middle classes – hit the family badly.

He said: ‘She told me how her parents were sent to work in the countryside by Communist officials and Qu Li, who would have been just three when the Cultural Revolution began in 1966, was taken away from them and selected for training for China’s Olympic diving team.

‘She told me she was injured and couldn’t continue but someone must have realised she was bright and they began to educate her.’

After ten years, the country’s despotic leader Chairman Mao, realising China’s industries were on the verge of collapse, abandoned the Cultural Revolution and the Lis returned to Nanjing to revitalise the ailing car plant.

Affair: Nick Stephenson was one of the directors at MG Rover. He was part of the so-called Phoenix Four

Dr Li’s colleague added: ‘The regime realised it needed people like her father and their expertise and he was brought back to run the Nanjing business. Her mother was then brought back to run the welding institute at Nanjing.

‘They had to watch their step. People I met who fell foul of the regime would suddenly disappear. They were no longer mentioned by their former friends and it did not pay to ask what had become of them.’

He added: ‘But Qu told me she remained separated from her parents for years and was only reunited with them when she was aged around 18. Maybe that is why she is the driven individual she is today.’

The colleague said he was later introduced to Dr Li’s parents on a business trip with Qu Li to China.

He said: ‘Mr Li was a figurehead of the company, who was greatly revered.’

Dr Li will not discuss her family. Through her spokesman she dismissed it as ‘irrelevant’, although she says the Rover executives and the Government inspectors were aware of who they were.

And, while acknowledging she was trained as an Olympic diver and a gymnast, she casts doubt on some of the things her former colleagues say that she told them about her upbringing, including that the Communist regime had taken her from her mother and father.

'Dr Li acted vigorously and effectively on MG Rover’s behalf, securing £67million of investment that kept the plant going at one time.'

What is certain is that Dr Li did well enough in her studies in China that she was allowed to come to Britain in 1990 to study for her PhD at Leeds University.

Graduating in 1996, she dedicated her 450-page thesis on metallurgy – entitled ‘The effects of vanadium and nitrogen additions on the grain coarsening characteristics of titanium steels’ – to ‘my family and friends for their continuous encouragement and support through this work’.

One account suggests that to pay her way through university, she started working in a local restaurant.

But Dr Li told Government inspectors that she spent large periods of time helping Chinese firms negotiate joint ventures with Western firms.

By her own admission last week, she was, at one time, a Chinese government official.

She did not explain what her role for the Communist regime was, but what is clear is that her experience in business and as a Chinese official has proved useful.

‘Her contacts were second to none,’ said one Western businessman she had previously helped do deals in China.

‘Wherever you went with her, everything was laid on. She always knew the right official to see to make sure everything went smoothly.’

So why the Government’s highly-paid inspectors chose to focus so much of their efforts on Dr Li’s affair with Phoenix director Mr Stephenson is unclear.

Dr Li told them there was intimacy on an ‘intermittent’ basis over maybe ‘a couple of months’.

Mr Stephenson said the relationship started in early 2004 but was ‘dead and buried probably – towards the end of that year’.

One witness told the department’s investigators: ‘When she was in China in the early part of 2005, there was “lots of speculation” about the relationship between Dr Li and Mr Stephenson’.

The report added: ‘It is, perhaps, also noteworthy that the relationship was such that MG Rover engineers observed the closeness of the two on a trip to China in, probably, the second half of 2004.’

Dr Li last week said she was ‘shocked and shaken’ by the ‘inappropriate’ interest the inspectors had shown in her sex life during a two-day evidence session.

‘I feel that I was stoned to death for three years by the Government inspectors,’ she said last week.

At the time of their affair, Mr Stephenson was divorced and Dr Li says she was in a long-term relationship with another man. She described the relationship as a ‘very private issue’ between herself and Mr Stephenson.

She added: ‘When you are working intensively on a deal – and I was in China for 180 days negotiating – all the team members try to support each other. Maybe sometimes the support went slightly beyond the boundaries. But as far as I am concerned, this was not a relationship.’

Last night, a spokesman for Dr Li said she had never made a secret of her family association with the Chinese car industry but said that she had been hired by MG Rover and at all times worked for the firm’s benefit.

He said: ‘It has never been a secret that Dr Li belongs to family steeped in the automotive industry. Her father was chief engineer at Nanjing, although he retired 15 years ago.

‘Dr Li had no commercial interest, directly or indirectly, in Nanjing while she worked for MG Rover.

‘The MG Rover directors knew of her background and credentials – that’s exactly why they employed her to act for them. The Government inspectors were also aware, from oral and written evidence to them, of her background and expertise.

‘Dr Li acted vigorously and effectively on MG Rover’s behalf, securing £67million of investment that kept the plant going at one time.

‘No one was more bitterly disappointed when that joint venture [with the Chinese car giant the Shanghai Automotive Industry Corporation] did not materialise and MG Rover collapsed.’

A spokesman for one of the report’s authors, Gervase MacGregor, a forensic accountant at BDO Stoy Hayward, said: ‘The MG Rover investigation was fair and conducted with the highest degree of integrity. All information disclosed to the inspectors was carefully considered in the preparation of their report.’

A spokesperson for the Department for Business said: ‘These allegations cannot hide the evidence which the inspectors uncovered and which is set out clearly in the report.

‘This includes evidence that the directors took “unreasonably large financial rewards” for themselves, evidence that MPs had been given “inaccurate and misleading explanations” for what had been going on, evidence that software was bought designed to wipe computer records after the enquiry was launched.

‘The inspectors were also critical of the fact that the group paid Dr Li amounts that were much too high but they did not find that Dr Li’s actions directly contributed to the failure to find a joint venture partner for Rover.

‘Directors are responsible for running companies and taking decisions. Whatever advice the directors were given, they were responsible for the decisions they took.’

Additional reporting: Andrew Young and Hazel Parry in Hong Kong