Germany has reacted to last year's foreign dealmaking frenzy by raising the bar on criteria for overseas acquirers seeking to snap up domestic targets in tech-heavy industries.
A new directive adopted on Wednesday broadens the remit of an existing law which currently enables the government to block a non-European Union (EU) buyer from acquiring more than 25 percent of a German company if such a move is deemed to threaten public order or national security.
The expanded powers now allow ministers to investigate deals affecting companies that are considered to provide "critical infrastructure", in particular, those producing software for utilities, payment, medical and transportation systems.
The tightening of regulation comes hot on the heels of a spate of acquisition activity in 2016 driven by Chinese firms seeking to boost their technological capabilities by buying foreign targets with advanced skills in this area.
Last year Chinese acquirers paid a total of €9.1 billion ($10.4 billion) across 35 deals for German targets, according to data from mergermarket.
Given rising economic protectionism within Europe in combination with additional capital controls and restrictions imposed on would-be Chinese buyers of foreign targets by domestic authorities in recent months, dealmaking involving these countries had already slowed to a much more contained €2.4 billion in the first half of this year.
Yet despite the increasingly cumbersome framework, Chinese appetite for European and specifically German targets remains high, according to Yi Sun, China business services leader for Germany, Switzerland and Austria at professional services firm, EY.
"Tightening rules regarding takeovers for foreign investors in Germany will lead to a hold in the first place because non-European investors will have to observe the implementation of the new rules. The preparations of deals will have to be more thorough in the future but Chinese investors have become more professional in the last years," Sun told CNBC via email on Thursday.
"In the long run, dealmaking activity between China and Germany will remain high, keeping in mind that China is already the EU's biggest trading partner - a reality that cannot be ignored," she added.
More concerted attempts to protect European companies from foreign takeovers have been in evidence in recent months with two salient examples being the dismantling of the merger between the London Stock Exchange and German peer Deutsche Boerse and the crushing of U.S. paint manufacturer PPG's attempted purchase of smaller Dutch rival Akzo Nobel, both after intense political debate.
Far from being a German governmental trend alone, several European leaders have recently called for more protection for domestic players across a range of industries, according to Jonathan Klonowski, EMEA research editor at mergermarket.
"Going forward we are likely to see firms conducting further work at the due diligence stage and we may see dealmakers becoming more selective over their prospective targets should this economic nationalism grow," Klonowski told CNBC via email on Thursday.
"We have already seen a drop in dealmaking from China into Europe, and the rhetoric is likely to see a further reduction in the coming months," he predicted.