Following what is considered a negotiating breakthrough, the General Electric Co. has signed a contract to sell powerful gas turbine engines to China for use in its naval modernization program, according to diplomats and businessmen here.

The turbine-engine sales will represent the most significant military transaction between the United States and China to date. The only previous major sale was for 24 civilian versions of the Sikorsky S70C Blackhawk helicopters, for use by the Chinese Army, valued at $150 million.

The American company recently concluded several months of negotiations with Chinese experts and signed a contract to sell five sophisticated LM2500 gas turbine engines, a shipbuilding industry specialist said.

General Electric officers here confirmed that the negotiations had been successful but said they could not provide details until agreement on the language of a news release was reached. The two sides are to announce the sale jointly, the officers said. General Electric competed with Rolls-Royce of Britain for the much sought-after Chinese contract and won despite a lower price by Rolls-Royce, the shipbuilding specialist said.

This specialist said the sale of the five engines to the Chinese was "just the beginning" of what was expected to be contracts for engines and related equipment amounting to "several hundred millions" of dollars.

In the initial stage, four of the engines would go into two Navy destroyers that are to be built by a ship design institute in the industrial city of Wuhan, he said. These would be prototype, or pilot project, engines, the specialist said.

The General Electric sale surprised some industry observers, because it was agreed upon at a time of tighter controls over Chinese foreign exchange reserves and followed a failure to agree on a U.S. Navy port call to China. The postponement, which some have called a cancellation, of an anticipated visit in mid-May came after the United States said it would refuse to confirm or deny the presence of nuclear weapons aboard any Navy ship visiting China.

The Chinese agreement with General Electric seems to indicate that although the aborted port visit was a symbolic setback, it had little practical impact on U.S.-China defense relations.

Secretary of Defense Caspar W. Weinberger cleared the way for military sales to China during a visit to Peking in September 1983. Navy Secretary John F. Lehman Jr.'s visit in August 1984 was reported to have facilitated agreement on American participation in China's destroyer modernization program.

Diplomats here said talks were continuing over the possible coproduction in China of American TOW wire-guided antitank missiles. A recent Chinese defense delegation to Western Europe apparently also has studied the possibility of purchasing Italian antitank missiles and technology.

When it was first disclosed last January that the United States would help modernize the Chinese destroyer fleet, officials in Taiwan said they regarded the decision as a threat to Taiwan. Last May, Communist Party General Secretary Hu Yaobang said in an interview that China might some day have to consider a blockade against Taiwan.

But American officials say that the United States and China share a common concern over the Soviet Union's naval buildup in the region.

Following the postponement of the Navy port call last May, some American officials are reported to have suggested a "selective slowdown" in military equipment negotiations with the Chinese to express American displeasure. But according to a diplomat here, "cooler minds prevailed."