A few weeks ago, I followed some stories on mergers and acquisitions (M&As), analysing some of the deals of the day. You can reflect on what I had to say by going here for the first entry, focusing on profile and finance-raising by firms like LinkedIn and takeovers of firms like Skype by Microsoft. I raised the prospect of another tech bubble forming, like the one that burst in the dot-com crash at the start of this century, with the second part of this series of blogs looking at the flotation of Russian internet firm, Yandex. Finally, I analysed the initial public offering (IPO) of one of the world’s biggest commodity firms, Glencore in this entry.

With many observers’ interests turning to China and its efforts to rebalance its economy away from exports to domestic consumption, it’s timely to look at how M&A activity is affecting the country. Biz/ed has been tracking economic changes in China for some time, most recently here and today’s news of a further hike in China’s interest rates – the third this year – shows how seriously monetary conditions in the country are regarded. Put simply, the authorities cannot risk rapidly accelerating inflation, as its impact on food, energy and housing costs may trigger popular unrest.

Higher interest rates should help China’s currency, the Yuan or Renminbi to strengthen. This will reduce the cost of imports, perhaps helping to ease inflationary pressures. Rising export costs – the other side of the currency appreciation coin – may encourage more Chinese firms to focus on their domestic markets, meeting demand there rather than trying to expand by growing overseas. Where does M&A activity fit into this picture? In buying up global market players, China’s companies are increasingly looking to satisfy internal demand, not only to grow abroad.

China is certainly flexing its muscles in the M&A field. It is expected by some analysts to account for almost 10% of global deals this year. And while its efforts often focus on foreign firms whose activities are vital to China’s self-interests, such as in power generation, it is also keen to increase activity in markets as diverse as chemical to retail, healthcare to real estate. The problem that some countries have had with this relates to a fear of what China will do with its new-found global power.

I will have more to say on this over the next few blog entries, but for now, I’ll leave you with a slightly different take on M&As involving China. Late last month, UK-based drinks giant Diageo spent £13m increasing its stake in Sichuan Chengdu Quanxing Group to 53%. This will give Diageo, which is behind famous brands such as Guinness and Smirnoff, control of Shuijingfang, a well-known brand of Chinese spirit Baijiu.

As some observers have noted, there are likely to have been political dimensions to this deal. It was announced as Premier Wen Jiabao was on a visit to the UK and political figures are known to have the power to block deals they don’t like. But as we’ll see later, that form of protectionism is not peculiar to the Chinese. In a dynamic global economy Chinese companies don’t normally get acquired by western firms – until now.