Nike Reports Persistent Problems at China Factories

HONG KONG (Reuters) – Nike Inc (NKE.N: Quote, Profile, Research), the world’s biggestsneaker and sportswear maker, said falsified documents,underage workers and unpaid wages were problems encountered atsuppliers in China, despite what experts say is one of the topsocial compliance regimes in the industry.

The Oregon-based company’s difficulties highlight the deeproots of some of the problems businesses face in manufacturingin China, particularly at a time of sharply rising costs and astiffening legal environment.

In its first country-specific supply chain report, which itsaid focused on China because of the upcoming Beijing Olympics,Nike detailed the efforts it has been making to get suppliersto comply with its code of conduct and Chinese law, including ascheme to monitor Olympics-related suppliers this year.

"As China continues to develop we see progress and bestpractices emerging. But like our partners in any other country,the factories we contract with in China continue to facechallenges as well," said the report, which was releasedearlier this month on Nike’s Web site.

It listed several labor-related challenges, includingfalsification of factory documents, like payroll records, lackof effective grievance systems for disgruntled workers andhiring practices that did not ensure minimum age standards aremet.

The report said China is Nike’s largest single sourcingcountry, with some 180 manufacturers and about 210,000employees.

Last year, Nike rolled out a scheme to check the identityof some 150,000 of its workers in China, and found 167 cases ofpeople who were below minimum age standards when they werehired but were now 18 or older. Two people were found to beunderage.

Wages in some places were not tracking government mandatedraises, the report said.

"As multiple factors drive up the cost of business, we findthat some contract factories try to avoid making changes towages in a timely manner," it said.

In 2005 and 2006, Nike "secured" over 6.53 million yuan($921,300) in back wages owed to workers in China. Last year,it said it recovered more than 500,000 yuan in back pay.

Experts say Nike has been an industry leader in corporatesocial responsibility. In 2005 it made public for the firsttime its entire supply chain.

But the problems the Nike report said it was trying totackle were widespread in China.

Last year, a rights group reported that it had foundchildren working at factories making Olympics bags, caps andstationary.

About one third of Nike shoes are made in China, as is muchof the apparel and equipment it sells worldwide.

($1=7.088 Yuan)

(Reporting by John Ruwitch; editing by Kim Coghill)