The shipping and construction company is to oversee the construction of a 50-storey office tower in the centre of Shanghai alongside two 22- storey residential towers.
The deal was signed at one of two ceremonies in the city attended by Michael Heseltine, Deputy Prime Minister, as part of his trade mission to China.
The second contract was the establishment of a joint venture between Crosroll, a British textile company, and a Shanghai company, to produce textiles.
Lord Sterling, chairman of P&O, said in London that the company had had links with the region for nearly 150 years, and the group's decision to open new offices in Shanghai was "the clearest possible sign of our commitment".
Mr Heseltine is leading a delegation of 270 business people to China, drumming up business for British companies.
Since arriving in Shanghai, he has met the mayor and leaders of five cities in eastern China. The construction contract was won by the P&O subsidiary Bovis Asia Pacific, and the buildings will be in the heart of the Bund district of Shanghai, where Western companies had their headquarters in pre-communist days.
Mr Heseltine said UK companies would have many opportunities to win contracts for Shanghai's new international airport, even though France has won the design contract.
He was speaking after an official briefing about the Pudong New Area where the airport, costing pounds 650m, is to be built ready for opening on the 50th anniversary of the People's Republic of China in 1999.
Shanghai has chosen Aeroport de Paris to design the airport but has not signed a formal contract the value of which will be a small part of the total cost.
"There will be various tendering processes, and in them British companies will have every opportunity to play a significant part in the development of the airport," Mr Heseltine said.
Among the contracts to be awarded are those for large engineering work, air traffic control and airport management. He said UK firms were very strong in radar and communications.
Mr Heseltine is due to meet China's President Jiang Zemin today in the southern city of Zhuhai, near Hong Kong.
A Chinese government spokesman said China's leaders and Mr Heseltine agreed this week that both sides wanted closer co-operation to guarantee Hong Kong's smooth transfer to Chinese sovereignty in 1997.Reuse content