Aug. 20 (Bloomberg) -- German Chancellor Angela Merkel's Cabinet approved a draft law aimed at fending off undesired foreign takeovers, setting limits on investment that reflect concern over the growing strength of sovereign wealth funds.

Germany said last year that it will follow the U.S. and France in thwarting investments that jeopardize the security of key industries such as telecommunications and ports. Sovereign wealth funds controlled by countries including Russia and China manage $3.85 trillion, according to the International Monetary Fund. That sum may be as much as $15 trillion by 2015, it says.

``The majority of foreign investments won't be affected by the draft law,'' Economy Minister Michael Glos said in a faxed statement after the Cabinet's decision in Berlin today. ``Germany is and remains open to foreign investments.''

The draft law gives a commission, headed by the Economy Ministry, power to block bids for 25 percent or more of a target company by funds or companies whose majority owners are not nationals of the 27-nation European Union. Glos said that ``public order and security'' will be the main criteria to be considered in the approval process.

Business lobbies including the BDI industry federation and the DIHK chamber of industry and commerce still warn the new rules may deter foreign investors and hurt business interests in Germany, the world's biggest exporter of goods.

`More Not Less'

``We are dependent on foreign investors,'' BDI President Juergen Thumann said in a ZDF interview yesterday. ``Two million German jobs depend on them. We want more not less investment.''

Workers employed by Hapag-Lloyd AG, travel operator TUI AG's shipping unit, yesterday called on the government to block a potential sale to Neptune Orient Lines Ltd., majority-owned by the Singapore government's Temasek Holdings fund.

Federal parliament lawmakers including Social Democrat Ortwin Runde, a former mayor of Hamburg where Hapag is headquartered, have urged the government not to try to block a sale of the unit to a foreign bidder on grounds of security.

``It's not a port company, but a container company,'' Runde said in an interview last month. ``We're not talking about a company that's vital to national security.''

`Indisputable Benefits'

``We mustn't squander away the indisputable benefits of the free flow of capital,'' Manfred Weber, head of the BDB banking association, which represents lenders such as Deutsche Bank AG and Commerzbank AG, said today in a faxed statement. Still, it's ``understandable'' that the government protects its right to safeguard national security interests, he said.

Calls for Germany to adopt measures to block foreign investment were stepped up in 2006 after Russian state-owned bank Vneshtorgbank OJSC bought a stake in European Aeronautic Defence and Space Co., raising concerns among lawmakers and others that the lender would gain access to European military technology.

The French government on Dec. 31 published a decree allowing it to ban foreign investment or takeovers in 11 industries, including computer-network security, casinos and manufacturing of vaccines against bio-terrorist threats.

The German commission may have as little as three months to hold up or block sales to foreign bidders, according to Glos's bill. The legislation's compliance with European Union rules may also need clarification.

Charlie McCreevy, the EU Commission's internal market regulator, said in September last year that the trade bloc may sue the French government if its planned legislation restricts competition and economic growth. EU law permits takeover defenses for military and security purposes.

To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net; Brian Parkin in Berlin at bparkin@bloomberg.net.

Last Updated: August 20, 2008 06:38 EDT