The U.S. investment bank's joint venture informed the China Securities Regulatory Commission (CSRC) a couple of months ago about plans to changes in equity holding, subject to regulatory approval, the people said.

Morgan Stanley is seeking to raise its holding in the venture with Chinese partner Huaxin Securities to 51% from 49%. The venture's offerings includes underwriting and sponsoring of stock and bond sales.

The approval is likely to come in the second half of the year, the people said, with one saying it is likely to be as soon as the fourth quarter.

The timeline for possible approval to ownership changes in the joint venture has not been reported before.

When approved, Morgan Stanley will join rivals HSBC Holdings PLC, JPMorgan Chase & Co, Nomura Holdings Inc and UBS Group in owning controlling stakes in onshore securities joint ventures in China under liberalized rules announced in November 2017.

The move by Morgan Stanley comes even as the United States and China have waged a year-long trade war marked by tit-for-tat import tariffs on each other's goods. The likely approval, however, will be another indication that China is nevertheless pushing ahead with its agenda to open up its financial sector, after JPMorgan's approval in March.

China has in recent months allowed many foreign financial firms to either set up new businesses onshore or expand their presence through majority ownership in domestic joint ventures across mutual funds, insurance and brokerage businesses.

Earlier in June, Morgan Stanley Chief Executive James Gorman said he wanted majority ownership of a joint venture in China, but that regulators has not signed off on the idea. Morgan Stanley also has a fund management joint venture in the country. Gorman did not identify which venture he was referring to.

Morgan Stanley's senior Hong Kong bankers in recent months have been working on integrating its operations with the joint venture's, another person said. Those efforts are progressing "at full speed", the person said.

The outcome of Sino-U.S. talks to reach a trade deal could, however, impact the approval timeline, said the people, who declined to be identified as they were not authorized to discuss regulatory matters with media.

A spokeswoman for Morgan Stanley in Hong Kong declined to comment. The CSRC has not responded to a Reuters request for comment.

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Shanghai Fortune, the parent of Huaxin, said in a June 13 regulatory filing that it planned to divest of a 2% stake in Morgan Stanley Huaxin Securities through a bidding process for no less than 376.2 million yuan ($54.72 million).

The firm did not disclose possible bidders, but such a process is usually a means of transferring additional shares to an existing joint venture partner. After winning the auction, the bidder would still need regulatory approval.

Morgan Stanley raised its stake in the venture to 49% from 33.3% in 2017, betting on strong deals momentum. Before easing ownership rules in late 2017, China allowed foreigners to own a maximum 49% in such ventures.

That lack of control and limited contribution to revenue have long been a source of frustration for Wall Street banks, and became a key issue in Washington's push to persuade Beijing to open up its market for wider foreign participation.

The lifting of the cap on foreign stakes to 51% has allowed Western banks to buy more shares from their partners in existing joint ventures or enter into new partnerships.

JPMorgan and Nomura became the latest to win regulatory approval to set up majority-owned brokerage joint ventures in March this year. UBS received approval in November to hold a majority stake in its existing joint venture.

Management control would allow foreign banks including Morgan Stanley to offer more services through their joint ventures and potentially leverage their global networks to win China market share, bankers have previously said.

($1 = 6.8749 Chinese yuan renminbi)

(Reporting by Kane Wu and Sumeet Chatterjee; Additional reporting by Julie Zhu and Felix Tam; Editing by Christopher Cushing)

By Kane Wu and Sumeet Chatterjee