New regulations will allow the German government to block takeovers if there is a risk of important know-how being lost abroad.
The German cabinet agreed on Wednesday to tighten scrutiny on takeovers of companies in strategic industries by buyers outside the EU, the Economy Ministry said, reacting to Europe-wide disquiet over Chinese takeovers.
The new regulations will allow the government to block takeovers if there is a risk of important know-how being lost abroad. The rules do not need parliamentary approval.
It will also allow Berlin more time to probe takeover bids, especially in sectors affecting critical infrastructure, and extend the range of deals eligible for examination by the authorities.
"We remain one of the most open economies in the world, but we also have an eye on fair competition. We owe that to our companies," Economy Minister Brigitte Zypries said in a statement.
"In future, reporting requirements and more time to examine deals will provide more protection and reciprocity for companies in critical infrastructure."
The new ruling extends takeover probes to include companies providing services or software to strategic sectors including electricity grids, nuclear power plants, water supplies, telecoms networks, hospitals and airports.
More defence companies manufacturing or developing "key technologies" are also covered than under previous rules.
The purchase of German robotics maker Kuka by Chinese company Midea last year fuelled concerns that China was gaining access to key technologies while shielding its own companies from foreign takeovers.
Earlier this year, the German economics ministry withdrew approval for the Fujian Grand Chip Investment Fund (FGC) to buy chip equipment maker Aixtron , citing security concerns.
Protection of EU industries
Last month, European Union leaders agreed to consider screening investments by state-owned Chinese firms.
France, Germany and Italy have backed the idea of allowing the EU to block Chinese investments, partly because European companies are denied similar access in China.
However, some other EU countries, such as Sweden, have said this is heading in the direction of protectionism.
In recent weeks, Chancellor Angela Merkel has drawn closer to French President Emmanuel Macron, who has called for increased protection against non-EU takeovers.
Macron failed to convince fellow EU leaders to grant Brussels more takeover-blocking powers at a meeting in late June.
But the German leader took his side in a magazine interview a week later, saying she wanted to protect "strategic" EU industries and for Europe to "defend its influence and above all to speak with one voice" to Beijing.