Iconic Chinese brand still in low spirits

But it is not all good news for leading alcoholic brands. Data from Mintel showed that Pernod Ricard SA, the world's second-largest distiller, has seen its volume market share drop in China from 25.8 percent in 2013 to 22.7 percent last year.

Sales also fell by 2 percent in 2014, according to the company's financial report. But that was an improvement on the 23 percent decline a year earlier.

"Diageo has been performing better than Pernod Ricard as its products are in step with Chinese consumers. Pernod Ricard's brands tend to be used more for business occasions," Zhang said. "So when the market was hit, companies close to consumers adapted more quickly."

Still, the investment in Shuijingfang's high-end brand is a sound long-term decision.

"It is better to compete in a category that constitutes 99 percent of the market than fighting fiercely in a category that only takes up the rest of the 1 percent," Zhang said.

Even so, sources told China Daily that Diageo has been laying off management staff once their contracts come up for renewal. Of the 120 employees in the Shanghai office, only about 80 are still there from last year, the sources said.

Diageo has denied the claims. "The turnover rate in the fiscal year 2015 is not the real figure," the company said in a statement. "Diageo China's voluntary turn-over was 15 percent, which is consistent with multinational companies in China.

"In addition, we increased our investment in people by adding to our headcount. We (now have) 142 employees based in our Shanghai office."