A wealthy Chinese industrialist being investigated for allegedly syphoning off hundreds of millions of pounds from state-owned companies may have been taken to Bermuda.

Yang Rong, 46, was the driving force behind a partnership between MG Rover and Bermuda-incorporated Brilliance China, one of China's most successful motor manufacturers.

Many of Mr. Yang's other companies have also been registered in Bermuda. Last year he was named as China's third richest man with a fortune of more than $800 million (?526 million).

News of Mr. Yang's disappearance from public view - and his possible move to Bermuda - was reported yesterday in the London-based Times.

According to the Times, China's state-controlled media reported this month that Mr Yang, who was the chairman of Brilliance until his sudden resignation in June, had been arrested as part of an investigation into allegations of corruption, bribery and the embezzlement of state assets.

Official Chinese sources said that Mr. Yang was being held under "closed surveillance" by a detail from the Ministry of State Security as investigators tried to force him to return money stolen from companies under his control. The investigation is deadlocked, however, after he allegedly threatened to reveal that he had bribed a top acolyte of the Chinese Prime Minister, Zhu Rongji.

The trade-off between Mr Yang and the Government, the sources said, was his freedom in return for the money - and his silence, the Times reported.

"Yang appears to be in a good position in all this because it goes right to the top and the last thing the Chinese Government needs is another big scandal," one official said.

"He knows a lot of names and a lot of dirty secrets and he has all the money, so basically he holds all the cards."

According to the Times, the situation could be disastrous for British workers.

The MG Rover-Brilliance tie-up was welcomed when it was announced in March as securing thousands of jobs by giving MG Rover rights to develop a small car for Asian markets while handing the Chinese firm the right to manufacture and market vehicles made by the new joint venture in China, Asia and Africa.

Stewart McKee, MG Rover's public relations director, said that the partnership was on track to begin simultaneous production of a small car in Britain and China by 2005.

The controversy surrounding Mr Yang would have "no impact whatsoever on our alliance agreement", Mr McKee said.

"We are already a long way down the road in our alliance operations."

Industry sources told the Times that, with Mr. Yang no longer chairman of Brilliance, MG Rover had lost the main thrust behind the deal as other board members preferred to concentrate on an existing partnership with BMW.

Brilliance executives are putting a brave face on the investigation, claiming that Mr Yang has been on sick leave since his resignation.

Government sources told the Times that Mr. Yang's resignation and a subsequent share sale were part of a negotiating process that was testing all his skills as a tough negotiator and astute political player.

Sources close to the investigation told the Times that Mr. Yang had maintained links with the Ministry of State Security as it sponsored his rise to the summit of China's corporate and industrial complex. Officials described the operation as amounting to the reining in of a rogue.

Mr Yang has been under surveillance for most of the past decade. He was barred from leaving China until recently, when investigators lifted a travel ban during negotiations.

According to the Times, the official suggested that he had left China, possibly for the United States, where his wife and son live.

Insiders believe, however, that he may have been taken to Bermuda, where he has registered many of his companies, by investigators who are trying to unravel a complex network of up to 300 interconnected firms that he allegedly established as vehicles for embezzlement.

So far, investigators claim that they have uncovered up to 500 million yuan (?38 million) transferred from state coffers to offshore companies held in the names of a number of Mr Yang's relatives, the Times reported.

Mr Yang, who cultivated an air of mystery in keeping with his intelligence agency links, was born in Anhui province, one of the poorest regions of China. He joined the army as a teenager and was wounded in the border war with Vietnam in 1979.

After leaving the army he traded jade and timber in the Golden Triangle province of Yunnan, and spent time in Burma and Thailand.

In the early 1980s, according to the Times, he gained a doctorate in economics at the Southwestern Finance University in Sichuan province, and was taken on by the central bank, which sent him to Hong Kong.

After a stint as a financier in colonial Hong Kong, he was transferred to the bank's Beijing headquarters, where he began to build a sprawling business empire.

By the start of this year he controlled five publicly traded companies with a total value of ?1.5 billion.

He raised more than ?900 million on stock exchanges in China, Hong Kong and New York.

Now questions are being asked as to why the New York Stock Exchange failed to conduct a proper investigation into Brilliance at the time of its 1992 listing, which raised $80 million.

Mr Yang took a State-owned company and transferred its ownership to the China Financial Education Foundation, owned by the central bank but controlled by him.

The Times stated he then registered Brilliance in Bermuda to circumvent Chinese regulations prohibiting the overseas listing of wholly Chinese-owned companies, assuring bank officials that he was acting for the good of the Chinese motherland.