Chinese clubs have made a number of high-profile signings recently, and Carvalho becomes Shanghai's fifth foreign player, joining Brazilians Oscar, Hulk and Elkeson, and Uzbekistan captain Odil Ahmedov.
Concerned at the amount of money being spent on foreign players in terms of transfer fees and salaries, China's Football Association clamped down last month, limiting clubs to fielding a maximum of three foreign players per game.
"If any of our other four foreign players is injured, Carvalho will get chance," Shanghai president Chen Xuyuan was quoted as saying by Xinhua.
"As one of the top defenders in the world, his experience is important to help young players."
Carvalho, part of the Portugal team that triumphed at Euro 2016, won the Champions League with Porto in 2004.
He also captured three Premier League titles, three FA Cups and two League Cups with Chelsea as well as one La Liga title and the King's Cup with Real Madrid.
(Reporting by Simon Jennings in Bengaluru, editing by Pritha Sarkar)
