Germany is to toughen its rules on foreign investment in key sectors such as defence and energy, highlighting the growing concern in Berlin over Chinese influence on businesses in Europe’s largest economy.

A draft law approved by the cabinet on Wednesday will give the government the right to scrutinise — and potentially block — all investments in sensitive industries in which a non-EU company acquires more than 10 per cent of a German business. The previous threshold was 25 per cent, while earlier proposals suggested a threshold of 15 per cent.

The law will apply to defence and security companies and businesses that operate “critical infrastructure” such as energy, power and telecommunications, as well as the media industry. “This is an extremely important step towards strengthening our national security,” said Peter Altmaier, the German economy minister.