South Korea emerged as the second-largest foreign investor in China in the first quarter of this year, a report showed Monday, on expectations that local companies could bask in a bilateral free trade deal.

Capping years of negotiations, South Korea and China initialed a free trade agreement in February, with both sides seeking to implement it as early as later this year.

South Korean companies invested US$1.62 billion in China in the January-March period, the second-largest amount after Hong Kong's $25.94 billion, according to the report by the Beijing office of the Korea International Trade Association.

South Korea was trailed by Taiwan and Singapore with $1.29 billion and $1.23 billion, respectively, the report showed.

Investments by Japanese firms came in fifth at $1.06 billion.

Last year, South Korea's foreign direct investment in China reached an eight-year high of $3.97 billion to rank fifth, according to the report.

The rise in first-quarter investments was due largely to an outlook that the bilateral FTA could help South Korean firms expand their foothold in the world's second-largest economy, according to the report.

"With the FTA, South Korean companies are pushing to find new business opportunities in China," said Choi Yong-min, head of KITA's office in Beijing.

"If the FTA is implemented in the second half of this year, South Korean companies' investment and trade with China are likely to gather even more momentum."

The report also expected South Korea to outstrip Japan as China's second-largest trading partner after the United States sooner or later. China remains South Korea's biggest trading partner. (Yonhap)