The German government on Wednesday forbid the complete takeover of satellite startup KLEO Connect by a Chinese firm, two government sources told Reuters.
The cabinet agreed a decision by the economy ministry not to let Shanghai Spacecom Satellite Technology, which already has 53% of the company, acquire the 45% minority stake of German company EightyLeo, according to the sources.
KLEO Connect wants to establish a network of more than 300 small, low earth orbit satellites to be fully operational by 2028 along with the ground infrastructure to provide global communications services - similar to SpaceX with its project Starlink.
This emerging space sector is increasingly considered strategically important as the recent debate over the possible use of Starlink by the Ukrainian military in its defence against Russia's invasion.
Elon Musk said last week he refused a Ukrainian request to activate his Starlink satellite network in Crimea's port city of Sevastopol last year to aid an attack on Russia's fleet there, saying he feared complicity in a "major" act of war.
Germany has over the last year toughened its stance on China, with the government of Chancellor Olaf Scholz warning of the need to reduce its strategic dependencies on the Asian superpower.
Berlin last November blocked prospective Chinese investment in two domestic semiconductor producers after the moves raised concerns over national security and the flow of sensitive technological know-how to Beijing.
However in May, the government gave the go-ahead for China's state-owned shipping giant COSCO to buy part of a Hamburg port-based container terminal despite objections from several ministries. The United states and the European Commission had also warned against the deal that had been long in the pipeline, according to sources and media reports. (Reporting by Andreas Rinke; Writing Sarah Marsh; Editing by Friederike Heine and Louise Heavens)