HONG KONG, May 22 (Reuters) - Power Corporation of Canada (Power Corp) has shut its China investment unit and dismissed all staff, said two people briefed on the matter, becoming the latest Western financial firm to pull back amid the country's economic challenges.

Power Sustainable, which is the asset management arm of Power Corp and manages $4.5 billion of assets globally, started laying off all of its 17 local staff in recent weeks as it moved towards shutting down the Shanghai-based unit, said the people.

Economic slowdown has seen many of the Western financial firms that scrambled to expand China operations a few years ago take a hit on their earnings and rein in their ambitions for what was a key piece of their global growth strategy.

The closure of Power Sustainable (Shanghai) Investment Management, which was established in 2019 and invested in public equities in China, was due to the group's change in strategy, the people said, declining to be named as they are not authorised to speak to media.

It is not immediately known how much assets the onshore arm managed. The group utilised the platform to not only invest on behalf of onshore clients but also offshore clients, one of the two people said.

Power Sustainable made "a strategic decision as part of the realignment of its (investment) management business to wind down its China public equity strategy", a Montreal-based Power Corp spokesperson told Reuters without commenting on local staff.

"We remain optimistic about China's future prospects and economic growth," said the spokesperson.

Power Corp will remain invested in the country with investments in mainland China's public equity markets through its Qualified Foreign Institutional Investor (QFII) licence, the spokesperson added.

A QFII licence allows offshore institutions to mostly invest in China's listed securities without having to set up operations in the country.

The Power group of companies has investments in China through one of its subsidiary's 27.8% holding in China Asset Management Company (ChinaAMC), China's second-largest mutual fund manager.

Power Corp had in recent months turned more pessimistic about the investment business amid China's faltering economic growth and rising geopolitical uncertainties, the people said.

The unit's closure adds to a growing list of global financial firms that have cut back their China business presence or growth ambitions in the recent past, as prospects dimmed for the world's second-largest economy.

Over the last two months, Fidelity International, Morgan Stanley and Legal & General have either sharply cut China-focused jobs or have shelved expansion plans, Reuters reported. (Reporting by Selena Li in Hong Kong; Editing by Sumeet Chatterjee and Christopher Cushing)