Scotiabank is pulling out of a deal signed in 2011 that would have seen the Canadian lender own 19.99 per cent of the Bank of Guangzhou in Southern China.

"Since announcing the proposed investment in September of 2011 Scotiabank and the City of Guangzhou have re-evaluated the proposed partnership in light of changing conditions," the bank said in a statement.

With more than $25 billion in assets, the Bank of Guangzhou is the 29th-largest bank in China. The bank is not publicly traded and is controlled by the Chinese government, which had originally selected Scotiabank as the winning bid for the minority stake in the bank.

Under Chinese law, no foreign entity can own more than 20 per cent of a Chinese bank and must obtain government permission for stakes even under the 20 per cent threshold

The bank operates in a fast growing region of southern China, with an expanding middle class that has benefited from China's growing trade with the world. The Chinese bank has a growing retail customer base and also focuses on providing corporate and treasury services to companies in China.

"Scotiabank will continue to consider future opportunities for investment in China that are in line with our strategy and footprint in the region," said Dieter Jentsch, head of global banking at Scotiabank.

Scotia recently finalized the purchase of a Chinese money manager called Bank of Beijing Scotia Asset Management  and owns a separate, 19.99 per cent stake in the Bank of Xi'an.

Scotiabank first set up shop in China in 1982 and currently has Scotia-branded branches in Guangzhou, Chongqing and Shanghai, in addition to branches in Hong Kong and Taipei.