The main suspect, named as Thomas R, is accused of spying for the Chinese Ministry of State Security (MSS).
Prosecutors allege his network operated a front company which co-operated with German research organisations.
The accused are said to have collected sensitive information, including designs for an engine suitable for use on combat ships, to pass on to China.
In a separate development, two men in the UK were charged with spying for China after being accused of providing information which could be “useful to an enemy”, according to police.
In the German case, prosecutors allege Thomas R obtained “innovative technologies for military use” on behalf of an MSS employee. They also allege he used a company – run by the two other suspects, named as Herwig F and Ina F – which contacted people working in science and research.
A first project regarding the operation of high-performance marine engines for use on combat ships is alleged to have already been completed.
At the time of their arrest, the accused were allegedly in further negotiations on other projects that could be of use for China’s navy, prosecutors said.
They added that the arrests took place in the western German states of Hesse and North-Rhine-Westphalia.
The three suspects are also accused of exporting a laser to China, which is banned under EU “dual use” regulations. The rules prohibit sending goods which can be used for military and civilian purposes to certain countries.
Interior Minister Nancy Faeser said the arrests of the three suspects in Germany were a “great success for our counterintelligence”.
“The area affected in the current case – innovative technologies from Germany that can be used for military purposes – is particularly sensitive,” she added.
The arrests come a week after Chancellor Olaf Scholz visited Beijing, where he raised issues including China’s support for Russia since the invasion of Ukraine.
They also come days after two alleged spies, suspected of planning to sabotage German military aid for Ukraine, were arrested in the southern German state of Bavaria.
The two men, described as dual German-Russian nationals, were detained on suspicion of spying for Russia.
