The decision by Angela Merkel's cabinet is a response to mounting concern that China's state-backed companies are gaining too much access to key technologies in Europe's biggest economy while Beijing shields its own companies.
"Germany is an open market economy where foreign investments are welcome. That will remain the case in future. But we must not be naive," said Joachim Pfeiffer, spokesman for economic affairs in Merkel's conservative bloc.
If foreign states pursue political goals with targeted investments in key areas, Berlin must be able to act, he said.
"It is important to keep a balance ... and to use the instruments only after careful consideration," Pfeiffer said, adding: "Sealing ourselves off is not the answer, it leads to a spiral of protectionism."
Germany introduced the 25 percent threshold in 2004 and expanded its veto powers in 2017. The measures are meant to protect vital infrastructure such as energy, water, food supply, telecommunications, finance and transportation. The rules passed on Wednesday added media companies.
The BDI industry association criticised the move. "Germany must remain open to foreign investors," it said.
However, China's Yantai Taihai dropped an attempted purchase of Germany's Leifeld, a maker of tools for the nuclear power sector, after Berlin signalled in August that it would veto it.
In July, a German state bank took a stake in high-voltage grid operator 50Hertz to stop China's State Grid buying it after it found no alternative private investor in Europe.
A Chinese Foreign Ministry spokeswoman said the rules mentioned no specific country and that while ties were good, Germany and China shared responsibility to protect free trade.
"We hope Germany can create a fair, open market access environment and stable institutional framework for foreign companies, including Chinese ones, investing in Germany," she said.
Among the most prominent cases in Germany are the 2016 purchase of German robotics maker Kuka by China's Midea and Geely's surprise purchase of almost 10 percent in Daimler in February.
European Union states agreed earlier this month to a far-reaching system to coordinate scrutiny of foreign investments in Europe, notably from China. (Additional reporting by Ben Blanchard in Beijing; Writing by Madeline Chambers; Editing by Maria Sheahan)
(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)