With an increasing number of multinational enterprises conducting business in China, the problems of thin cap became noticeable in the late 1990s and provoked a fierce debate among scholars concerning whether thin cap rules should be introduced. In the promulgation of Enterprise Income Tax Law in 2008, thin cap rules were introduced under Article 46. This article briefly recalls the historical origin of measures against the thin capitalization of companies before 2008. It discusses the different tax treatments of interest and dividends under the current income tax system, and then examines how thin cap rules are structured and applied in China as well as their possible consequences.