South Korean direct investment in China fell more than 5 percent annually over the past five years, a report showed Wednesday, stoking concern over weaker market presence in the world’s second-largest economy.

According to the report by the Korea Center for International Finance, South Korean companies’ direct investment in China shrank at an average annual rate of 5.4 percent between 2007-2012.

The decline caused the percentage of South Korea’s direct investment in China to fall from 5.4 percent of the total in 2006 to 2.2 percent in 2011.

It said this is in contrast to a 9.9 percent annual increase in investments reported by Japanese companies in the same period.

The KCIF added that South Korean investment is still concentrated in manufacturing while other countries are pouring money into the service sector.

In 2011, 77.4 percent of all investments that went into China were in manufacturing, which is much higher than the average 44.9 percent for other countries.

“There is a need to rethink corporate strategies in terms of investing in China since Beijing is moving to strengthen its domestic economy that could translate into growth of service industries,” the think tank said.

It added that global investment in China contracted 2.4 percent in the first four months of this year from 2011, mainly because of the eurozone crisis and concerns of an economic slowdown, wage hikes and the steady appreciation of the Chinese yuan. (Yonhap News)