South Korea's direct investment in China has dropped for the past decade due to increased labor costs and reduced incentives for foreign firms there, a report showed on Monday.

According to the report compiled by the Federation of Korean Industries, the largest business lobby with the top 600 firms in South Korea under its wings, the country's direct investment in China, the world's No. 2 economy, reached $2.85 billion last year, a sharp drop from its peak at $5.44 billion in 2007.

The number of newly established South Korean firms in China sank to 700 last year from 2,300 in 2006, the report showed.

Consequently, the portion of South Korea's direct investment in China to its overall foreign direct investment dropped to 10.5 percent last year from the record 39.3 percent tallied in 2005, it said.

The report said other nations' direct investments in China are also showing signs of a slowdown with a rise of only 6.8 percent in 2015, decelerating from a 7.8-percent on-year growth the previous year.

In the meantime, South Korea's direct investment in the member countries of the Association of Southeast Asian Nations reached $4.16 billion last year. In particular, the country's direct investment in Vietnam surged to $1.5 billion last year from a meager $70 million in 2000, the report said. (Yonhap)