While following the global trend of rising protectionism, Germany’s plans to further tighten its stance over vetoing foreign investment will serve to further unsettle an already unstable cross border negotiating table. And the signs all point towards China being one investor likely to be more severely impacted than most.

Last year, Germany’s foreign investment 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 involving 25% stakes of Germany-based companies. Its latest planned measure will lower this threshold to 15%, meaning more deals being investigated and potentially less money being spent.

Germany’s foreign investment concerns began with the takeover of industrial robotics manufacturer Kuka by China’s Midea [SHE:000333] in 2016. At the time, the German government felt its hands were tied as it could do nothing but try to orchestrate an unsuccessful counter-offer by European players to beat the Chinese EUR 4.5bn bid.

More recently, Chinese deals with German industrial targets have caught the market’s attention once again.

China’s Yantai Taihai Corp performed an about-turn last week over its offer to buy German machine tool manufacturer Leifeld Metal Spinning AG before Merkel’s cabinet could cast a planned vote to block the deal.

And just last month, the government directed state bank KfW to take a 20% stake in local high-voltage network operator 50Hertz, fending off an offer from China’s state-owned power giant, State Grid Corporation of China.

German policy makers may consider it has no choice but to tighten the measures to block unwanted takeovers as Chinese investors have displayed a growing appetite for Germany’s “smart and sensitive” technologies.

This all fits into fulfilling one of Xi Jinping’s key economic policies, Made in China 2025, which aims to upgrade the country’s manufacturing technologies, making use of overseas acquisitions.

And China has looked longingly towards Germany’s renowned industrials sector.

So, will the need for Chinese strategics to upgrade their industrial technology only install an additional level of caution when deciding on what deals to chase, or instill a complete shift away from Germany being a major M&A destination?

Germany, meantime, generates close to half of its GDP from exports and cannot afford this escalating to a dispute that would ultimately undermine global trade. It is also one of the strongest supporters of a European Commission proposal to coordinate foreign direct investment screening in the EU.

While the government has laid out reasons for its policy, German sellers may still welcome Chinese involvement. More bidders equal greater competition, resulting in larger price tags. And with so much loose yuan to spend, there could be many in the M&A community reluctant to see this on the wane.

by Fei'er Wang in Shanghai and Joao Grando in London, with analytics by Jonathan Klonowski