SPECIAL REPORT-A Morgan Stanley star falls in China

*Firm's probe finds ex employee may have bribed officials

*U.S. and Chinese government investigations continue

*Number of corruption cases in China are on the rise (Adds quote from Kalsi spokeswoman)

By George Chen and Steve Eder

SHANGHAI/NEW YORK, Nov 10 (Reuters) - In the end, Garth Peterson, a rising star at Morgan Stanley in China, was undone by his pursuit of "guanxi."

A central concept in Chinese society, guanxi loosely translates as "connections" and relationships." But to Chinese people, it means much more than that: Guanxi equals power.

"Sometimes, money cannot buy you guanxi. But if you have guanxi, you will definitely have money," according to a Chinese saying.

When Peterson, an American then in his early 30s, joined Morgan Stanley's (MS.N) real estate investment operation in China about eight years ago, he had not yet accumulated much guanxi. But he would soon possess a surplus, fueling his rapid ascent at the bank.

With his blond hair and blue eyes, he spoke fluent Mandarin and the Shanghai dialect, and was described by his Morgan Stanley colleagues as a serial networker, making friends with the sons and daughters of powerful Beijing and Shanghai leaders and charming the Chinese executives of multinational corporations.