China was increasingly becoming a big player as an acquirer of foreign firms -- as CNOOC Ltd.'s US$18.5 billion bid for Unocal Corp. illustrates—but future deals would focus on buying brands or strategic resources, said global advisory company KPMG.

"Merger and acquisition (M&A) are gaining ground within boardrooms in China and companies will increasingly show more interest in outbound acquisitions," said Gavin Geminder, head of corporate finance for KPMG China.

"China's really making an impression on the world stage but deals are, and will continue to be, highly selective," he said.

Specifically, deals will continue to be in areas such as energy and natural resources, both deemed strategic by Chinese policy, or as Lenovo Group Ltd.'s US$1.8 billion purchase of International Business Machine Corp.'s (IBM) personal computer division showed, an acquisition aimed at "getting distribution on a global scale with a recognized brand."

In its latest survey, in association with Dealogic, KPMG found China was ranked as the third- biggest acquirer of overseas companies in the Asia-Pacific region in the first half of the year, with US$3.4 billion of deals. These include Lenovo's IBM deal and China Network Communications Group Corp.'s purchase of a 20 percent stake in Hong Kong fixed-line operator PCCW Ltd.

CNOOC said Friday it was offering US$18.5 billion for Unocal, in an effort to break up Chevron Corp.'s US$16.5 billion acquisition. The CNOOC offer is the largest foreign acquisition ever attempted by a Chinese company, and marks the first time Chinese and U.S. companies have engaged in a takeover battle. Other deals by Chinese companies in the pipeline include Qingdao Haier Co.'s US$1.13 billion bid for appliance maker Maytag Corp. earlier last week.

"The issues Chinese companies acquiring international brands will have to face are overcoming cultural differences and the difference in the breadth and depth of management expertise of many overseas companies," said Geminder.

"I'd expect at least a half a dozen similar deals by the end of the year," said Jack J.T. Huang, chairman of international law firm Jones Day's China practice.

Prize acquisitions can turn out to be liabilities, pointing to the case of TCL Communication Technology Holdings Ltd., whose joint venture with France's Alcatel SA foundered amid rising losses for the intensively competitive cell phone business.

"When these situations can indeed be turned around by reducing costs or otherwise adding value, it's a big win for Chinese companies," said Huang. "If not, it could be a nightmare."

KPMG issued a report Friday forecasting that by the end of June, the value of global M&A deals should reach US$771 billion -- up 14 percent from the first half of 2004 -- while by the end of the year, it should be US$1,300 billion, up 17 percent.