The Wall Street bank had signed an initial agreement with Jutian Fund, and the Chinese fund has applied to regulators to seal the deal.
The fund, which is based in Shenzhen near Hong Kong, plans to sell about 50 per cent of the stake to foreign investors including Morgan Stanley, to restructure its business, according to Reuters.
It is not known how much stake Morgan Stanley will control or how much it would pay, but it was revealed that a Chinese firm would join the US bank as a co-investor.
It is not clear whether the deal will win the regulatory approval of the Chinese officials as foreign investors are not allowed to own any more than 50 per cent in Chinese businesses.
Morgan Stanley also owns one-third of Beijing-based China International Capital Corp and the small Nan Tung Bank which it acquired in October.