President Barack Obama on Friday took the rare step of forbidding a foreign company from buying a firm with U.S. assets, telling a Chinese investment fund that it cannot complete a deal for German technology company Aixtron SE.

Mr. Obama's move, only his second outright ban on a foreign acquisition, shows the increasing suspicion the U.S. harbors toward Chinese acquisitions of certain U.S. firms, even before the arrival of President-elect Donald Trump, who made criticism of Beijing a cornerstone of his campaign.

In a statement released on Friday, the Treasury Department said Mr. Obama had issued an order barring Fujian Grand Chip Investment Fund LP, part-owned by the Chinese government, from buying Aixtron. The ban follows a recommendation from the Committee on Foreign Investment in the U.S., or CFIUS, which confidentially reviews foreign acquisitions solely on national-security grounds.

"The national security risk posed by the transaction relates, among other things, to the military applications of the overall technical body of knowledge and experience of Aixtron, a producer and innovator of semiconductor manufacturing equipment and technology, and the contribution of Aixtron's U.S. business to that body of knowledge and experience," said the Treasury Department, which oversees CFIUS, in a statement.

CFIUS can approve acquisitions from foreign investors, work with the companies involved to mitigate national security concerns and occasionally lean on companies to drop a bid when the security problems can't be resolved. In extreme cases CFIUS, an interagency group, can recommend that the president block a deal.

The president has the authority under federal law to block foreign control of any U.S. business, even if it is held by a foreign company.

A spokesman for China's foreign ministry on Friday complained about signs political leaders would block the deal. "Given that it's a normal commercial M&A, it should be handled according to commercial principles and market rules," the spokesman said.

Aixtron's U.S. subsidiary, Aixtron Inc., employs around 100 people at a facility in Sunnydale, Calif.

This year officials have signaled opposition to several Chinese bids for key semiconductor firms, according to the companies in involved.

Write to William Mauldin at william.mauldin@wsj.com

(END) Dow Jones Newswires

December 02, 2016 17:25 ET (22:25 GMT)