Goldman Sachs Group may supplant Morgan Stanley as China’s no. 1 stock underwriter this year when Industrial & Commercial Bank of China raises as much as $12 billion in the country’s biggest initial public offering.

Goldman, the second-largest American securities firm by market value, is the frontrunner to win the assignment two months after it led a group that’s investing about $3.78 billion in Beijingbased Industrial & Commercial, bankers familiar with the matter said. Industrial & Commercial left Morgan Stanley out of the bidding for what may be the world’s biggest IPO in seven years, bankers said.

At stake are about $300 million of fees and bragging rights in the world’s fastest-growing major economy. Morgan Stanley was China’s top equity underwriter in 2005, data compiled by Bloomberg show. Goldman, which ranked fourth, also is managing an $8 billion IPO for Bank of China, the country’s second-biggest bank after Industrial & Commercial.

“In the opening salvo for the war over China’s financial-services market, Morgan Stanley is behind Goldman,” a finance professor at Rensselaer Polytechnic Institute, Phillip Phan, said.

A Goldman spokesman in Hong Kong, Edward Naylor, a Hong Kong-based spokeswoman at Morgan Stanley,Cheung Po-ling,and an Industrial & Commercial spokesman, Xie Taifeng, declined to comment.

Executives from Industrial & Commercial are scheduled to meet with investment bankers today to discuss the IPO. In addition to Goldman, Industrial & Commercial asked Credit Suisse Group, Deutsche Bank AG, HSBC Holdings Plc, Merrill Lynch, JPMorgan Chase, Lehman Brothers, and China International Capital Corporation, partly owned by Morgan Stanley, to submit proposals, bankers said.

Industrial & Commercial was set up in 1984 by the government to offer deposit and lending services to stateowned companies.The bank last month said it will earn at least $12.4 billion in operating profit this year.

For Morgan Stanley, the Industrial & Commercial IPO may be a blow because it has provided financial advice to the company for more than three years.

“You can’t be global without China,” Mr. Phan said.”Losing this deal has got to hurt at Morgan Stanley, but it’s going to be temporary. These decisions are political in China.”

Jonathan Zhu resigned in January as head of Morgan Stanley’s China business to take a job at the American buyout firm Bain Capital. Morgan Stanley hired Citigroup’s Wei Christianson, 49, to replace Mr. Zhu.

Morgan Stanley was dropped from the bidding for Industrial & Commercial on February 24, bankers familiar with the decision said. Officials at Industrial & Commercial didn’t want any tensions with archrival Goldman, which might have resulted in a delay, and decided to leave Morgan Stanley out of the process, the people said.

Goldman and Morgan Stanley comanaged Ping An Insurance (Group) Company’s $1.8 billion IPO in 2004. It’s the only share sale in China that the two firms have worked on together, according to Bloomberg data.

Morgan Stanley and Goldman were among the first Wall Street firms to compete for the Industrial & Commercial assignment. The firms were at first deleted from the list of prospective underwriters because of concern about potential conflicts, bankers said. Goldman was later reinstated and Morgan Stanley wasn’t, they said.

“China is a country with little transparency so investment banks don’t always know how things work in the process or why they lose out,” a fund manager at Golden Honour Asset Management, Koh Choy, said. “There is no certainty of winning business.”

Morgan Stanley last year arranged a $9.2 billion share sale by China Construction Bank Corporation, the biggest Chinese IPO so far.