Germany is to increase its powers to block foreign investments by significantly lowering the threshold for deals that can be subject to ministerial veto, in a further sign of growing protectionist sentiment towards Chinese acquisitions.
Berlin can veto deals that involve the purchase of at least 25 percent of the equity of a German company by an entity from outside the EU, and only if they endanger public order or national security. Ministers now want to reduce that threshold to 15 per cent.
Peter Altmaier, economics minister, told the newspaper Die Welt that the threshold would be lowered "so that we can check more acquisitions in sensitive sectors of the economy". Die Welt said the new bill could come into force this year.
"We want to be able to take a much closer look at companies in the defense sector and in critical infrastructures, and certain other civilian technologies that are relevant to security, such as IT-security," Mr. Altmaier said.
Germany is increasingly intervening to stop Chinese investments, particularly in companies operating in critical infrastructure, amid fears that some of its most advanced technology is ending up in Chinese hands.
Last month, the government directed state development bank KfW to take a 20 percent stake in 50Hertz, a high-voltage power network operator, to pre-empt the stake's acquisition by a Chinese state investor.
Last week a Chinese company, Yantai Taihai, withdrew its bid for Leifeld Metal Spinning, a small German machine tool manufacturer that specializes in materials for the aerospace and nuclear industries, after the government moved to block the deal. It would have been the first use of Germany's foreign investment law to veto a mergers and acquisitions transaction.
Germany's tougher stance is part of a global backlash against Chinese takeovers. President Donald Trump is expected to sign into law measures to expand the powers of the Committee on Foreign Investment in the US (Cfius), an inter-agency panel that reviews foreign investments for national security threats. Meanwhile the UK recently unveiled a 120-page policy to enhance government powers to prevent foreign purchases of security-sensitive British assets.
China has also hit back. Its recent move to scupper a $44bn bid by chipmaker Qualcomm for a Dutch rival was seen by many experts as retaliation for a string of decisions by Cfius to reject Chinese acquisitions of US companies.
Protectionist sentiment has been growing in Germany since the €4.5bn acquisition of Kuka, a leading industrial robotics company, by Chinese appliance maker Midea in 2016.
Germany's wariness about Chinese investment has increased since the emergence of Made in China 2025, President Xi Jinping's 10-year plan to transform the country from a low-cost manufacturer into a high-tech power dominant in 10 advanced industries.
"They have made clear they will pursue that goal with every means available," says Mikko Huotari, deputy director of Merics, a think-tank focused on Asia.
Germany's main business lobby, the BDI, gave a cautious response to the proposed change to the law. "Germany is reliant on its open investment climate," said Joachim Lang, the group's managing director.
He said capital was increasingly coming from dynamic emerging markets and "a smart economic policy must take care to ensure that Germany remains attractive for investors". Nearly 3m workers in Germany are employed at companies that are owned by foreigners, he added.
Mr. Lang said the lower threshold must "be focused strictly on protecting national security".
This is the second time in little more than a year that Germany has tightened its foreign investment law to expand its ability to block deals deemed to endanger national security.
Last year the law was broadened to apply to all companies operating in "critical infrastructure" such as energy and water supply networks, electronic payments, hospitals and transport systems. It also gave the government longer to investigate takeovers, expanding the timeframe for such probes from two to four months.
The new version of the law will also cover companies involved in the interception of telecoms, cloud-computing services, control systems for power plants and power networks, the provision of drinking water or sewage disposal, systems for cash supply and credit cards and the settlement of securities transactions, among other sectors.
"Of course we want companies to continue to invest in Germany," Mr. Altmaier said. "But we also have a duty to protect the interests of security and public order."
More from the Financial Times: