Yue Yuen Drops in Hong Kong as Strike Disrupts Output

Yue Yuen Industrial Holdings Ltd. (551), the world’s largest branded shoemaker, fell most in almost a year in Hong Kong trading after the company said it plans to increase factory workers’ compensation in a bid to end a strike.

Yue Yuen fell as much as 6.3 percent to HK$24.45, the most intraday since May 7, 2013. The shares traded at HK$24.65 as of the midday trading break in the city, bringing their decline this year to 4.8 percent this year, compared with a 2.6 percent on Hang Seng Index.

The shoemaker, a supplier to companies including Adidas AG (ADS) and Nike Inc. (NKE) has offered to raise a living allowance at its factories in southern China by 230 yuan ($37) a month starting May 1, spokesman George Liu said in a phone interview yesterday. It also agreed to bring forward to next month a social-security benefit plan originally scheduled for 2015, Liu said.

Workers have disrupted production in Yue Yuen’s Dongguan factory complex, which employs more than 40,000 people, since April 14 in a dispute over pay, benefits and the right to pick their own union.

Employees were seen coming to the plant, clocking in and then leaving yesterday. Some workers who asked not to be identified because they or their family members could lose their jobs, said yesterday in interviews that they were still on strike.

The labor dispute adds to Chinese manufacturers faced with disruptions as wages rise and workers demand better compensation. Rising costs have also prompted some employers to move production abroad.

Employees interviewed at the factory yesterday and on April 19 said the company had failed to agree on demands for more pay, a change in contract status and reimbursement for unpaid benefits contributions. Some demanded no punishment for strikers and the right to elect their own union leaders.

More Demands

At least 80 percent of the workers won’t take the offer, said Xiang Feng, 28, a worker in the factory’s finance department. The company’s plan to raise monthly contributions for social security would make it compulsory for employees to boost their own share of payments, she said.

“Workers may end up with a take-home salary almost unchanged or maybe even lower than before,” Xiang said.

The strikers expanded demands after an initial dispute over contributions to government-mandated social security and housing benefits for workers. The local government is fully aware and supportive of Yue Yuen’s proposed plan, Liu said.

Monitoring group China Labour Bulletin said on its website strikers at the Dongguan facility numbered at least 10,000, while Yue Yuen said April 16 that more than 1,000 were striking. Wal-Mart Stores Inc. and International Business Machines Corp. faced strikes earlier this year in China by workers demanding better compensation.

Riot Police

China’s wages are set to increase by 10 percent or more in 2014, driving more low-cost manufacturers out of the country and boosting consumption, according to analysts at firms including Bank of America Corp.

Nike has produced more shoes in Vietnam than in China since 2010. Adidas said in 2012 it would close the last factory it owned in China.

Police with riot gear and dogs were present outside Yue Yuen’s 1.4 million-square-meter (15 million square-foot) Dongguan complex yesterday. Dozens of workers were taken away by police last week, the official Xinhua News Agency reported April 17, without saying why the workers were taken. No one was injured and there were no clashes, Xinhua reported.

Police have told workers not to congregate around the factory, said three workers who asked not be identified because they or their family members could lose their jobs.

Nike Monitoring

Taiwan-based Pou Chen Group, the shoemaker’s parent company, is in discussions with the local government to resolve the striking workers’ concerns and an investigation will be conducted as soon as the strike ends, Adidas China said in an e-mailed statement April 18.

Nike is aware of and concerned by the events and is “continuing to monitor the dialog between factory management and the workers, as well as production at the factory,” the Beaverton, Oregon-based company said by e-mail on April 18.

Yue Yuen rose 0.2 percent last trading week, closing at HK$26.10 in Hong Kong trading April 17. Markets in the city were closed yesterday and April 18 for holidays.

The shoemaker, which is also facing a factory disruption in Jiangxi province in eastern China, is working with relevant government agencies to resolve the issue, Liu said. He said he expects operations in Jiangxi will return to normal today.

Yue Yuen, which had 423,000 employees as of 2012, was founded in 1988 by Taiwanese owners and has factories in China, Vietnam and Indonesia, according to its website.

To contact the reporter on this story: Dave McCombs in Tokyo at dmccombs@bloomberg.net

To contact the editors responsible for this story: Stephanie Wong at swong139@bloomberg.net Dave McCombs

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