BEIJING--Workers at a major shoe maker in southern China have walked off the job in a dispute over social-insurance payments, disrupting production and highlighting the increasingly testy labor relations in the world's No. 2 economy.

Workers at some facilities of Yue Yuen Industrial (Holdings) in Dongguan in Guangdong province went on strike for a third day on Wednesday, according to employees and labor-rights activists.

Hong Kong-listed Yue Yuen employs more than 40,000 workers at its Dongguan facilities, and is a supplier for Adidas AG and Nike Inc.

A spokeswoman for German sporting-goods company Adidas said Yue Yuen's plant that makes products for Adidas is operating with about 50% of its workforce. Adidas said it has had no slowdown in production volumes and China is still the most critical sourcing market for the company. Workers said most of the workforce at that part of Yue Yuen's operations had walked of the job.

A spokesman for Nike said the company is "aware of and concerned by the events at the Yue Yuen factory" and is monitoring talks between workers and factory management, as well as production of its products.

The number of workers taking part in the labor action was unclear but employees at the plant said that there were "large numbers" of police in streets near Yue Yuen's facilities.

The official Xinhua News Agency said that about 600 people took part in a protest at the same facilities earlier this month. Workers gave considerably higher figures.

Photos sent to The Wall Street Journal by workers showed what appeared to be crowds of hundreds of people gathered in the streets near the plant, though it was unclear when the photos were taken.

Workers said that the dispute was centered on levels of social insurance, adding that the company had made contributions based on basic wages rather than total pay.

Mr. Li, 38 years old, a native of Shaanxi province in north China, said his monthly salary is about 3,500 yuan ($565) but his social insurance payments were based on income of 1,810 yuan.

He also alleged the company wasn't making proper contributions to a housing fund.

"We workers abide by laws. Shouldn't the employer abide by laws, too?" said Mr. Li, who has been working at Yue Yuen for 18 years, mostly at company warehouses.

Yue Yuen officials in Hong Kong couldn't be reached, though a company official in Dongguan said that the issues were being discussed with workers.

Xinhua quoted an executive of the company as confirming that the social-insurance payments were below the levels required by law, adding that housing payments were made for only about 1,000 of the plant's total workforce.

Workers said Yue Yuen had promised to pay insurance according to law starting in May, but said the company is unable to pay the amounts that should have been paid for the previous years.

The problems at Yue Yuen are the latest in a spate of disputes involving foreign companies in China. Retailer Wal-Mart Stores Inc., U.K. drug company GlaxoSmithKline PLC and International Business Machines Corp. have all faced disputes with Chinese employees this year.

The demands raised by Yue Yuan workers reflect issues faced by most workers in China's manufacturing industry, and the resolution of this dispute will become an important precedent, according to not-for-profit organization China Labor Watch in Hong Kong.

A video of the strike from China Labor Watch appeared to show police attempting to quell thousands of workers as they marched down a long avenue in Dongguan.

A spokesman for the police in the area of Dongguan where the plant is located declined to comment.

Liyan Qi, Laurie Burkitt and Lilian Lin contributed to this article.

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