Police in Hangzhou, the capital of Zhejiang province in eastern China, say they destroyed around 10,000 bottles of fake baijiu, or white liquor, including Moutai, Wuliangye and many other brands with an estimated value of 20 million yuan (US$2.9 million).
They also arrested 22 people and seized 200,000 fake trademark labels from two workshops.
Police said the bottles of fake liquor had a strong resemblance to the genuine article because when officers scanned their QR codes, the information displayed showed that they were genuine, news website HK01.com reported.
After an investigation, police found that a syndicate operated by a family from Anhui province had collected used bottles of high-priced brands from Beijing, Hangzhou, Wenzhou and Zhangzhou. They then put low-quality distilled liquor into the used bottles, and packaged them with fake trademarks and security labels.
Police said the labels also looked very much like the real thing.
Police also found that the suspects had produced the fake liquor in the washrooms of apartments they rented in suburban areas. The equipment, a dirty barrel of the substandard liquor and bottles were just left on the washroom floors.
Moutai, the most prestigious liquor brand in China, is often served on official occasions and at state banquets, and has recently undergone a price hike because of short supply, Security Times reported.
Kweichow Moutai Co raised the price of a 500ml bottle of 53% Flying Fairy Kweichow Moutai to 1,499 yuan, but some retailers charge as much as 2,400 yuan, providing an incentive to produce counterfeit Moutai for hefty illegal profits.
The market value of Kweichow Moutai has surged to more than $145 billion.