Production has been indefinitely halted at a Chinese supplier to Samsung Electronics Co Ltd (005930.KS) after the factory was suspected of using child workers.

Samsung, the world's biggest smartphone maker, said last week it had stopped doing business with the Dongguan Shinyang Electronics factory, a wholly owned subsidiary of South Korea's Shinyang Engineering Co Ltd (086830.KQ), after an audit led to evidence of what Samsung called suspected child labor.

The Dongguan Shinyang factory is a squat building in an industrial estate in Chashan, one of hundreds of towns spread across southern China's Pearl River Delta, dubbed the factory of the world.

In Seoul, a senior official at parent firm Shinyang Engineering said its China factory had been idle since July 14.

The official, who declined to be named as he was not authorized to speak to the media, said Shinyang Engineering had asked the Chinese authorities to investigate the company that had supplied the factory with labor.

"We hope the problems will be resolved in a speedy manner so that we can resume production soon," he added.

The senior management at Dongguan Shinyang declined to meet or speak to the Reuters reporters who recently visited the plant but a manager who only gave his surname as Xie said there was no indication when production would resume.

"Of course it will take some time for us to get back to normal," he added.

Several workers at the plant said they were required to show up for work, but were asked to clean machinery and carry out other menial tasks as production had stopped.

"This factory has especially poor management," said Lai Zhenxiong, a worker in a bright pink uniform. "I hope we don't end up losing our jobs."

During the Reuters visit, a group of burly men circled the plant and blocked the gate with two cars. A member of the group, a man with a dragon tattoo on his forearm who said he represented a factory supplying electronics to Dongguan Shinyang yelled into the compound: "The boss owes us at least six million yuan ($950,000)".

The Seoul-based official for Shinyang Engineering, however, said its Chinese unit was under no pressure to pay back its debt. He said the unit had paid the $3.9 million it owed on July 1, and had a remaining debt of around $292,200.

PROBE UNDERWAY

The local government is conducting an investigation into the factory, according to a statement on its website dated July 16, two days after Samsung suspended its business.

The statement said local authorities had found no initial evidence of child labor at the Shinyang plant, but said the illegal hiring of child workers under 16 years of age was an issue of great concern.

Samsung's decision to halt business with Dongguan Shinyang comes less than a week after U.S.-based China Labour Watch said it found "at least five child workers" without contracts at the supplier and called Samsung's monitoring process to halt such practices "ineffective". [ID:nL4N0PL2EP]

Chinese labor law forbids hiring workers under 16.

Ian Spaulding, a senior partner for Elevate, a firm carrying out social compliance audits for manufacturers in China, said 1.21 percent of audits in 2014 had found evidence of child labor. He said the percentage of under-age workers increased during the winter and summer vacations, with students working in plants to meet the cyclical peaks in production in some sectors.

"If you're going from 10,000 to 60,000 workers in one month, it's hard for any factory to screen out those ineligible workers," Spaulding added. ($1 = 1026.8000 Korean won)