While recently auditing an apparel manufacturer in Dongguan that supplies American importers, the corporate compliance manager says he discussed wage levels with the factory's Hong Kong-based owner. The 2,000 employees who operate sewing and stitching machines in the multi-story complex often put in overtime but earn an average of only $125 a month, an amount the owner grudgingly acknowledged to the compliance manager doesn't meet Chinese overtime-pay requirements or corporate labor codes. "These goals are a fantasy," the owner said. "Maybe in two or three decades we can meet them."

Pinning down what Chinese production workers are paid can be tricky. Based on Chinese government figures, the average manufacturing wage in China is 64 cents an hour, according to the U.S. Bureau of Labor Statistics and demographer Judith Banister of Javelin Investments, a consulting firm in Beijing. That rate assumes a 40-hour week. In fact, 60- to 100-hour weeks are common in China, meaning that the real manufacturing wage is far less. Based on his own calculations from plant inspections, the veteran compliance manager estimates that employees at garment, electronics, and other export factories typically work more than 80 hours a week and make only 42 cents an hour.

BusinessWeek reviewed summaries of 28 recent industry audits of Chinese factories serving U.S. customers. A few factories supplying Black & Decker, Williams-Sonoma, and other well-known brands turned up clean, the summaries show. But these facilities were the exceptions.

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At most of the factories, auditors discovered records apparently meant to falsify payrolls and time sheets. One typical report concerns Zhongshan Tat Shing Toys Factory, which employs 650 people in the southern city of Zhongshan. The factory's main customers are Wal-Mart and Target. When an American-sponsored inspection team showed up this spring, factory managers produced time sheets showing each worker put in eight hours a day, Monday through Friday, and was paid double the local minimum wage of 43 cents per hour for eight hours on Saturday, according to an audit report.

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But when auditors interviewed workers in one section, some said that they were paid less than the minimum wage and that most of them were obliged to work an extra three to five hours a day, without overtime pay, the report shows. Most toiled an entire month without a day off. Workers told auditors that the factory had a different set of records showing actual overtime hours, the report says. Factory officials claimed that some of the papers had been destroyed by fire.

Wal-Mart's Wyatt doesn't dispute the discrepancies but stresses that the company is getting more aggressive overall in its monitoring. Wal-Mart says it does more audits than any other company — 13,600 reviews of 7,200 factories last year alone — and permanently banned 141 factories in 2005 as a result of serious infractions, such as using child labor. In a written statement, Target doesn't respond to the allegations but says that it "takes very seriously" the fair treatment of factory workers. It adds that it "is committed to taking corrective action — up to and including termination of the relationship for vendors" that violate local labor law or Target's code of conduct. The Zhongshan factory didn't respond to repeated requests for comment.

CONTINUED : "These workers were coached"

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