The short answer to this question, somewhat tongue-in-cheek, is that if you are a Caucasian, can breathe, walk and talk without assistance and can speak English natively without a major speech impediment, you are "qualified" to "teach English" in China. A more serious discussion, in terms of minimum legal qualifications and those currently in practice follows below.
To be legally employed in China you must enter the country with a work visa (Z-visa: See unit 6.1 in this guide "Obtaining a Z-visa"). Work visa requirements are based on guidelines established by China's State Administration for Foreign Expert Affairs (SAFEA). There are currently two categories of foreign experts in China: 1) Foreign educational, scientific, cultural and medical experts, and; 2) Foreign economic, technical and managerial experts. EFL teachers fall into the first category.
The guidelines state that a "foreign educational expert," or teacher, "should hold a minimum of a bachelor's degree and more than two years of experience." The work experience does not necessarily have to be in the field of education, but can be in any area deemed appropriate or relevant by the prospective employer. As the SAFEA guideline uses the Chinese character for the word "should," instead of "must have" or "needs to have," there has been a great deal of "flexible" interpretation across provinces regarding the minimum educational requirement over the years. While a bachelor's degree is generally regarded as the de facto minimum educational requirement to legally teach in China, this currently appears to be the exception instead of the rule—although there are many anecdotal reports that this is gradually changing. Certainly, the better paying and more satisfying jobs would only be available to those with a minimum of a bachelor's degree, and, more likely than not, prior teaching experience in one's native country. However keep in mind that the SAFEA regulations are strictly advisory and that each province, autonomous region, and municipality is free to adopt their own rules and procedures for issuing foreign expert certificates and residency permits.
Another thing you need to be aware of—when considering potential employment in China or understanding the rationale for the following section (qualifications in practice)—is that the role of most foreign English teachers in China is de-professionalized. As a rule, foreign "teachers" in China are predominantly used as "oral English" practice aids which, in reality, translates to facilitating and improving the students' listening and speaking skills. The mechanics and more technical aspects of English (grammar, sentence structure, writing and reading skills) are essentially delegated to the Chinese English teachers only (although there are a few exceptions) who teach English primarily in Chinese by a gross over-reliance on (and through the excessive drilling of) rules of grammar in a manner that completely defies the current body of knowledge regarding second language acquisition. In the context of this misguided and futile approach, even the most advanced and experienced foreign teacher, for the most part, is perceived and treated as little more than an assistant teacher to the real Chinese teachers who the Chinese truly (and falsely) believe are in a much better position to teach English to Chinese students. It is an academically unsound and indefensible bias but it is a rather strong, prevailing and ubiquitous one in China.
Unfortunately, the limited role of the foreign English teacher in China as described above is—in effect—dictated by law. Article 6 of the 1992 Rules for the Administration of Employment of Foreigners in China states:
The post to be filled by the foreigner recruited by the employer shall be the post of special need, a post that cannot be filled by any domestic candidates for the time being but violates no government regulations.
Thus the presence of foreign English teachers in China can only be legally justified by educationally compartmentalizing the teaching of English into four distinct parts, i.e., reading, writing, listening, and speaking, and then assigning only the practice of listening and speaking skills by a native speaker to the foreign teacher, as this creates a post that cannot be filled by domestic candidates. Strictly speaking, any employer that hired a certified Western English teacher to teach English in an integrated manner across all four skill sets would be in violation of Chinese law.
Consequently, although English as a foreign language has been required curriculum for the past 20 years—from 3rd grade through college—and despite the fact that most Chinese, under the age of 35, have studied English for a total of at least nine years, what you will mostly encounter is a population of people who cannot communicate at all in English unless they are currently attending university (and not necessarily even then). Chinese career educators attempt to sidestep the serious implications of this reality by trumpeting their relatively high CET and TEM exam scores as if this entirely settles the question regarding how effective their English teaching methods are. That these exams are compiled without the assistance of real foreign experts, that they are both invalid (i.e., don't measure what they claim to) and unreliable in predicting a student's real ability to use English functionally, that educators essentially teach to the actual answers on these exams, and that former copies of these exams can be downloaded from the Internet, appear to be nonissues to China’s educational leaders. (For an excellent in-depth discussion and analysis of the problem, from a systemic, cultural and characterological perspective, it is strongly recommended that you read "China EFL: The Unqualified, Teaching (sic) The Unmotivated, In a Hostile Environment" by Qiang and Wolff.)
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