FRANKFURT (Reuters) - Deutsche Bank's <DBKGn.DE> sale of a 20 percent stake in Chinese peer Hua Xia <600015.SS> to PICC Property and Casualty <2328.HK> has received regulatory approval, Germany's flagship lender said on Thursday.

Hopes to expand into the Chinese banking market never materialized for Deutsche Bank as for several other Western lenders. Bank of America <BAC.N> reacted in 2013 by divesting a shareholding in China Construction Bank <601939.SS>, while Citigroup <C.N> sold its stake in Chinese lender Guangfa [GDDVB.UL] earlier this year.

Deutsche Bank, which faces large legal costs for cleaning up past missteps as well as for reinventing itself in a changed market and regulatory environment decided the sale of the Hua Xia stake, in which Deutsche Bank invested in 2006, in December 2015.

But it took Hua Xia longer than expected to obtain clearance for the deal from the China Banking Regulatory Commission, weighing on the price of the sale.

While Deutsche Bank had said last year that it was selling the stake for 23 to 25.7 billion yuan or 3.2 to 3.7 billion euros ($3.6-4.1 billion), a move in exchange rates means that the price has come down to 3 to 3.5 billion euros.

At the beginning of 2015, the stake's market value stood at 4 billion euros, but it plunged in a global selloff of Chinese equities

Deutsche Bank wrote down the value of the stake to 2.8 billion euros in its books as of Sept. 30, among other due to dividend payments receives from Hua Xia.

New bank rules make it disadvantageous for banks to hold minority stakes in other lenders.

The Hua Xia divestment frees up capital and boosts Deutsche Bank's capital ratio by 50 basis points to 11.6 percent. The effect of the sale had already been taken into account in the European Central Bank's stress test of Europe's banks in summer.

($1 = 0.9010 euros)

(Reporting by Arno Schuetze; Editing by Maria Sheahan)