Morgan Stanley has been having control issues in China.

The New York investment bank is negotiating with private equity investors to sell its 34 percent stake in Chinese brokerage giant China International Capital Corp. The deal could generate as much as $1 billion, say reports — a nifty return on the 1995 purchase price of $37 million.

But what’s really behind Morgan’s push for a divorce from CICC is its desire to find a more passive partner, say sources. Under China’s rules, foreign investment banks are limited to one joint venture in each business, and they must be the minority owner. Despite owning only one third of CICC, Morgan sought to gain management control, but its partner resisted — a frustrating scenario for a Western bank jockeying for position in China. Selling the CICC stake, however, would pave the way for Morgan to enter into an investment banking joint venture with Shenzhen-based China Fortune Securities, says a source close to the two firms. And the smaller China Fortune has said it would give Morgan management control, although the Chinese firm and its partners would remain the majority stakeholder. Morgan already has an asset management joint venture with China Fortune, set up in 2008, when it bought a 40 percent stake in the joint....

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