Transit visas are for persons who are staying for a short period while in transit between two other countries.  You must have residency in the destination country or have a valid visa for it (if required).  The fee appears to be the same as for a tourist L, so check whether you might as well get a tourist L instead.

Some airports do not have an international transfer area and you might have to collect your baggage and exit into the main area so you would expect to need a visa.  However, in some instances the airport immigration officials will issue you with a 24 hour 'Stay Permit'.  When you make bookings that look like you will not be checked straight through to your final destination, you are advised to ask the airline or the agent, or contact the embassy or consulate to check if a transit visa is required. See also Airline Regulations

Visa Free Transit
1. No visa is required for foreigners who hold tickets to the final destination and have booked seats on international airlines, ships, trains transiting directly through China, and will stay for less than 24 hours and do not leave the specified transit area.

2. Passport holders of following 51 countries and regions can be granted a visa-free stay of up to 72 hours while in transit via Beijing Capital Airport (PEK), Shanghai Pudong International Airport (PVG) & Hongqiao International Airport (SHA), Guangzhou Baiyun Airport (CAN), Chengdu Shuangliu International Airport (CTU), Shenyang Taoxian International Airport (SHE), Dalian International Airport (DLC), Xian Xianyang International Airport (XIY), Guilin Liangjiang International Airport (KWL), Kunming Changshui International Airport (KMG) and Hangzhou Xiaoshan International Airport (HGH):

Argentina, Austria, Australia, Belgium, Albania, Bosnia and Herzegovina, Brazil, Brunei, Bulgaria, Canada, Chile, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Macedonia, Malta, Mexico, Netherlands, New Zealand, Poland, Portugal, Qatar, Republic of Montenegro, Romania, Russia, Serbia, Singapore, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, United Arab Emirates, Ukraine, United Kingdom, United States. Read 72-hour Visa-free Transitin detail.

Requirements
1. Applicant's valid passport must have at least six months of remaining validity with at least one blank visa page in it.
2. One truly completed Application Form. 
3. One color passport standard photo (2X2 square inch) glued or stapled on the application form.
4. A valid visa to the country of destination if required.
5. An air/train/ship ticket to the final destination with confirmed departure date and seats.

How to Apply
1. You can personally submit the application to the consular office of the Chinese Embassies, Consulates and other Chinese diplomatic missions which hold consular jurisdiction over your residence.
2. Or you can entrust someone else, a travel agency or a visa agency to act on your behalf if you can't come in person. Power of attorney is not required.
3. Mailed applications are not accepted by most of Chinese embassies or consulates in overseas.
4. No appointment is required.

Processing Time
1. The regular processing time is 4 working days
2. Express Service: 2-3 working days processing; US$ 20 will be charged.
3. Rush Service: 1 working day processing; US$ 30 will be charged.

Visa Fees
The fees are subject to your nationality and the number of entries. Please see the below fee table about applying for a transit visa in USA: