BERLIN (Reuters) - Germany is stepping up efforts to prevent companies in critical industries from falling into Chinese hands, taking a stake in a high-voltage network operator and planning to veto the sale of a machine-tooling business.

FILE PHOTO: Part of a transformer substation hosted by 50Hertz Transmission Company is pictured in Neuenhagen, Germany, March 6, 2014. REUTERS/Tobias Schwarz/File Photo

State bank KfW agreed on Friday to take a 20 percent stake in high-voltage energy network operator 50Hertz, fending off an offer from China’s State Grid.

Berlin also plans to veto the planned sale to Chinese investors of Leifeld Metal Spinning, customers of which include companies in the aerospace, chemicals and automotive industries, according to a government source familiar with the matter.

Talks are ongoing, but the cabinet is likely to announce its objection to the proposed deal next week, the source said. The planned veto was first reported by German magazine WirtschaftsWoche.

The measures come amid concerns in some countries - such as the United States, Germany, France, Australia and Britain - that China and other rivals are gaining access to key technologies via takeovers.

Germany’s economy ministry this week said that it wanted better tools for hindering takeovers of German companies by investors beyond the European Union that do not conform with market regulations. Britain also plans to tighten foreign takeover rules.

The German government had already tightened controls on foreign investments last year after a series of high-profile takeovers by Chinese companies, making it possible for Berlin to intervene if a buyer amassed a shareholding of 25 percent.

However, German industry association BDI said that KfW taking the stake in 50Hertz was problematic.

“Such a one-off decision runs the risk of hurting the climate for foreign investment,” BDI manager Stefan Mair said, highlighting that the laws introduced last year stated that security concerns arose only when a shareholding exceeds 25 percent.

CHINESE CONCERN

Chinese Foreign Ministry spokesman Geng Shuang told a daily news briefing on Friday that the ministry had noted the Liefeld report and expressed its concern.

“We hope the German side can objectively view Chinese investment and create a fair, open market access environment for Chinese companies investing in Germany,” Geng said.

With 50Hertz, which supplies electricity for about 18 million people, it was the second time China's State Grid had tried to gain a foothold after a 20 percent stake was put on the block this year by Australian infrastructure fund IFM. That stake was acquired by Belgian majority shareholder Elia ELI.BR.

IFM then put another 20 percent stake in Germany’s 50Hertz up for sale and State Grid this month made an offer worth almost 1 billion euros, people close to the matter have told Reuters.

Elia said on Friday that it exercised its right to buy the holding but will sell it on to KfW on the same terms.

“For security reasons, the German government has a strong interest in protecting critical energy infrastructure,” the finance and economy ministries said in a joint statement.

They said the acquisition of the 50Hertz stake by KfW was a temporary solution and that it intended to sell it on in the future.

German Economy Minister Peter Altmaier had said in June that he saw a problem in letting critical infrastructure fall into the hands of investors whose motivation and background were not clear, citing 50Hertz as an example.

Elia said the acquisition of the 20 percent stake was on similar financial conditions to a 20 percent holding it acquired from IFM in April. It paid 976 million euros ($1.14 billion) for that stake.

IFM and Elia bought 50Hertz from Swedish utility Vattenfall [VATN.UL] in 2010 for 810 million euros.

The deal is expected to close in the third quarter of 2018. Citi acted as financial adviser to Elia.