Nov. 9 (Bloomberg) -- Walt Disney Co., the second-biggest U.S. media company, is investigating alleged labor abuse in one of its factories in China.

``Our auditors are currently in the factory investigating claims brought to our attention,'' Alannah Goss, the company's Hong Kong-based Asia spokeswoman, said in an e-mail today. She declined to identify the factory and said Disney won't comment further until the probe is completed in ``the coming days.''

Walt Disney and Sanrio Co. were named in an August report by New York-based advocacy group China Labor Watch as companies whose demands for lower prices from suppliers contribute to poor product quality. Guangdong province's average annual wage in manufacturing plants was 18,019 yuan ($2,430) last year, making the production hub attractive for factory owners.

``Disney doesn't face the real problems,'' said Jenny Chan, a spokeswoman of SACOM, a Hong Kong-based group against corporate misbehavior. ``Disney put the blame on licensees because it said it didn't employ the workers or own the factories.''

The problems cannot be solved as long as Disney keeps demanding high quality products for low costs under tight schedules, Chan said. A SACOM investigation last month found that workers in factories that did business with Disney were working as long as 15 hours a day while being paid below the minimum wages allowed, she said.

McDonald's, KFC

The All-China Federation of Trade Unions said in April that McDonald's Corp. and Yum! Brands Inc.'s KFC restaurants paid part-time workers less than the legal wages in Guangdong. The two companies said their payment practices were legal.

Disney and its units ``take claims of unfair labor practices very seriously and investigate any such allegations thoroughly,'' Goss said.

Pearl Tower Garments & Toys Co. in Shenzhen, which makes Mickey Mouse dolls for Disney, violated employee contracts for many of its 1,000 workers, the China Labor Watch report said.

Conditions for workers in southern China's Guangdong province, where many toymakers operate, ``remain devastatingly brutal, with long hours, unsafe workplaces and restricted freedom of association, and in blatant violation of Chinese and international labor law,'' the China Labor Watch report said, citing its survey of eight factories in the province.

`Investigations Welcome'

China Labor Watch didn't provide any information in its 41- page report to support its charge that price cutting by international toy companies is responsible for the poor working and living conditions in Chinese factories.

``We don't expect to see immediate improvement but we welcome the investigations in China taken by international organizations,'' said Jeffrey Cronthall, an editor of China Labour Bulletin, a Hong Kong-based human rights group. ``The main focus is on ensuring that workers have the ability to protect their own rights,'' because China doesn't have enough effective democratic labor unions.

Labor conditions at Chinese manufacturers were put in focus last year after Apple Computer Inc. said its main supplier for iPod music players violated Apple's code of conduct. The manufacturer, owned by Taiwan's Hon Hai Precision Industry Co., corrected its violation after it was found to have made employees work more than 60 hours a week, Apple said in August 2006.

Some overseas companies have conducted quality audits of their Chinese suppliers to enhance working conditions and ease concerns that they're exploiting Chinese labor and lax work regulations for profit.

Wal-Mart Stores Inc. last year said the company was cooperating with the All-China Federation of Trade Unions, and that two-thirds of its stores in China had set up union branches.

Disney in 2003 checked working conditions of its supplier Aoyagi Toy Factory in Shenzhen and Hasbro Inc. audited the same factory in 2004, according to the China Labor Watch report.

Products made in China have been the focus of a surge in recalls this year, including at least 21 million items recalled by the world's largest toymaker, Mattel Inc.

To contact the reporter on this story: Ting Ting Ng in Hong Kong at tng9@bloomberg.net

Last Updated: November 9, 2007 04:26 EST