China is ranking first in cotton production for more than 20 years. The adoption of GM cotton, since 1997, through the marketing of many varieties, has enabled it to maintain its rank by overcoming the pest resistance to insecticides. The varietal contribution has resulted from a radical change in the legal framework to enhance the variety and seed markets. Nevertheless, today, all cotton sector stakeholders do recognize that there is a big issue of excessive competition from a great number of varieties leading to variety and seed mixture. This situation has led the Chinese Government to decide on a new support policy called "quality seed subsidy policy". The Chinese policy in the areas of varieties and seeds hence is providing an interesting case of interaction between policy and market within less than twenty years. Our paper is a contribution to analyse the cotton variety and seed market development of the last twenty years by focussing on the interaction between State intervention and market. A change in the cotton policy, consisting of liberalizing the variety and seed markets, could prove to be quite successful where the capacities for breeding and investment exist prior to the policy change. This success nevertheless will remain a short term one if no regulation is provided to prevent the market development from excessive and unfair competition. The case analysed is a good illustration of the shortfalls of unregulated competition. It is however ineffective to regulate by imposing what farmers should use. Such a direct intervention in the market is showing undesired effects on the viability of seed companies. An indirect approach, through the improvement of the seed production control device, would have been more efficient.