Nike reports problems at China factories

HONG KONG (Reuters) - Nike Inc (NKE.N), the world's biggest sneaker and sportswear maker, said it found falsified documents, underage workers and unpaid wages at suppliers in China, despite what experts say is one of the top social compliance regimes in the industry.

The company's shares were down nearly 2 percent in afternoon trading on the New York Stock Exchange.

The Oregon-based company's difficulties highlight the deep roots of some of the problems businesses face in manufacturing in China, particularly at a time of sharply rising costs and a stiffening legal environment.

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

"As China continues to develop we see progress and best practices emerging," said the report, which was released earlier this month on Nike's Web site. "But like our partners in any other country, the factories we contract with in China continue to face challenges as well."

The report noted problems including falsification of factory documents such as payroll records, lack of effective grievance systems for disgruntled workers and hiring practices that did not ensure minimum age standards were met.

Christopher Svezia, an athletic footwear and apparel analyst with Susquehanna Financial, said Nike has made strides over the years to improve labour conditions in China, where about one-third of its shoes are made.

"I think there's always going to be incremental issues that crop up as China continues to evolve as an entity in terms of labour laws and salaries and working conditions etcetera," Svezia said.

"Do you ever get to a point where it's 100 percent perfect? I don't know," he added.