South Korean manufacturers have been shifting the focus of their overseas direct investment to Vietnam from China thanks to tax benefits, cheaper labor and other favorable conditions, a report said Thursday.

Vietnam accounted for 17.7 percent of South Korean manufacturing companies' total direct overseas investment in 2017, up sharply from 3.7 percent in 1990, according to the report by the Federation of Korean Industries.

In contrast, the comparable figure for China tumbled to 27.6 percent last year from 44.5 percent in the 2000s.

In particular, South Korea's small and midsize manufacturers rushed to the Southeast Asian nation for direct investment, moving away from the world's second-largest economy.

South Korean small and medium-sized enterprises' investment in Vietnam outpaced the amount in China for the first time in 2014, with the total reaching US$720 million in 2017, compared with $430 million for China.

South Korean large companies' direct investment in China had been on the wane, but the amount was 2.7 times that in Vietnam last year.

The report said Vietnam's rise as a major destination for South Korean manufacturers' investment is attributable to changes in business climates and policies in both countries.

In 2008, China imposed a flat 25 percent corporate tax on both foreign-invested companies and domestic firms, including businesses in some high-tech sectors.

China has also expanded the list of products, in which foreign investment is banned or restricted, while the country's minimum wage has been on the steady rise.

In contrast, Vietnam has exempted foreign-invested high-tech companies from corporate taxes for four years, while lifting the cap on foreign investment.

In addition, Vietnam's minimum wage has fallen to a level half that in China, serving as a magnet for foreign companies, the report said. (Yonhap)