Wal-Mart Stores Inc's demand for rock-bottom prices from suppliers in China means some of these companies are forcing their employees to work in sweatshop-like conditions, a new report said on Wednesday.

China Labour Watch said Wal-Mart, which also operates more than 250 stores in China, is failing to pick up on such abuses when it carries out audits of certain suppliers, calling into doubt pledges to source ethically.

As the world's largest retailer, Wal-Mart leverages its massive product orders to purchase goods at low prices, and workers suffer the financial burden, China Labour Watch, a New York-based rights group, said.

Wal-Mart's China offices referred questions on the report to the United States, where representatives were not immediately available for comment.

Wal-Mart, the world's largest retailer and with more than 60,000 suppliers worldwide, procures billions of dollars worth of goods directly from China every year.

The company said last year that it would enforce stricter quality and environmental standards for its army of Chinese suppliers.

But in some factories run by Wal-Mart suppliers, China Labour Watch found pay was withheld to workers who did not meet production targets, and employees who were given only poor quality food or accommodation.

In two of the factories, workers were banned from wearing gloves, lest it slowed production, the report said.

Worst of all, two of the factories have rules forcing workers to lie to Wal-Mart auditors, forcing workers into silence as Wal-Mart turns a blind eye to sweatshop conditions, the report said.

While China Labour Watch noted that Wal-Mart had responded enthusiastically to help factories which do not meet standards, there had been no overall, systematic improvement.

Wal-Mart has basic standards which it must implement, China Labour Watch said.

It has the size and power to be an industry leader, and this will not come from Ethical Standards Programme initiatives alone but also from major change to Wal-Mart's corporate practices, including increased investment in the audit system and careful review of purchasing practices, it added.

The case of Wal-Mart, the world's largest retailer, shows that corporate codes of conduct and factory auditing are not enough by themselves to strengthen workers' rights if corporations are unwilling to pay the real price it costs to produce a product according to the standards in their codes.

(Reporting by Ben Blanchard and Emma Graham-Harrison; Editing by Alex Richardson)

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