HONG KONG/LONDON (Reuters) - Talks between Deutsche Bank, its asset management arm DWS and Chinese lender Postal Savings Bank of China (PSBC) over a joint venture in China have collapsed after the German firm resisted Beijing's request to boost its stake, sources said.

Deutsche Bank's majority-owned fund arm DWS has long been targeting expansion in China's asset management business and has been speaking to PSBC for about five years, said two sources with direct knowledge of the matter.

Calling off the JV talks deals a blow to the German firm's China ambitions, after Beijing introduced a new framework under which BlackRock ( BLK ) and Goldman Sachs ( GS ) partnered with large Chinese banks to meet Chinese investors' growing needs.

The development comes amid several rival Western money managers having hit snags trying to launch or grow in China, while others have been put off by simmering geopolitical tensions and a weakened economic outlook.

DWS's latest plan was for Deutsche Bank to own a 47.5% stake in the venture, with PSBC owing another 47.5%, and U.S. investment firm Ares Management ( ARES ) the remaining 5%, the sources said.

Chinese authorities wanted Deutsche Bank to boost its holdings in the new venture to take a majority stake on their own, and the talks foundered on this issue, the sources said, declining to be named as the discussions were private.

It was not immediately clear why Deutsche Bank did not want a majority stake.

Beijing in 2019 first said it would allow global firms to form foreign majority-owned asset management JVs with the wealth arms of Chinese banks. Current rules don't specify whether at least one foreign investor must be a majority shareholder.

DWS, Deutsche Bank and Ares declined to comment.

A faxed request and phone calls for comment from the Chinese banking sector regulator, the National Financial Regulatory Administration (NFRA), went unanswered due to the Lunar New Year holidays in China. PSBC also did not respond.

DWS CEO Stefan Hoops, in the role since 2022, has said expanding in the wider Asia-Pacific region is a strategic priority. The company still has a footprint in China through its 30% stake in Harvest Fund.

Western financial institutions had been scrambling to get into China but doubts about its economy, limited dealmaking opportunities and concerns about regulatory interference have soured the outlook.

Last year, Fidelity International, Morgan Stanley ( MS ), and Legal & General ( LGGNF ), were among those either cutting China-focused jobs or shelving expansion plans.