SHANGHAI, Aug 4 (Reuters) - Commonwealth Bank of Australia (CBA.AX: Quote, Profile, Research) expects to change the local partner in its China insurance joint venture, teaming up with an investment arm of the Shanghai city government, state media reported on Friday.

Shanghai International Group, which controls Pudong Development Bank (600000.SS: Quote, Profile, Research), is in advanced stages of negotiations to take a majority stake in China Life-CMG Life Assurance Co., the official Securities Times said.

The company is a life insurance venture between CBA and China's biggest life insurer, China Life Insurance Co. (2628.HK: Quote, Profile, Research) (LFC.N: Quote, Profile, Research) and CBA.

"We are negotiating over price and we expect a deal can be reached very soon," the newspaper quoted an unidentified Shanghai International executive as saying.

Shanghai International is keen to buy the stake as it wants to establish a new source of profits in the country's young but rapidly growing insurance services market, the newspaper said.

It did not reveal financial details of the proposed deal. Established in June 2000, Shanghai-based China Life-CMG is a small, second-tier life insurer, owned 51 percent by China Life and 49 percent by CBA, Australia's second-largest bank by assets.

When it listed on the Hong Kong bourse in December 2003, China Life agreed to sell its stake in China Life-CMG within three years to avoid any conflict of interest with the joint venture.

Several general managers of the joint venture have been replaced within five years, and analysts believe cultural barriers between senior managers at China Life and CBA could also spur China Life to cut ties with the venture, the official China Daily reported late last year.

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