Is it really required to hand over your passport

To process your residence permit, which is placed in your passport, you must give your passport to the Immigration police department directly; your school can assist you but you must be there for your photograph to be taken. The Foreign Expert certificate does not require your presence.

The residence permit process can take as long as 12 days, I seem to recall, but it may be available sooner.

In the interim, if you request, they will give you a stamped document which you can use for high-speed rail, air travel or to register at hotels. Always keep photographs of your passport on your phone and in your possession.

When you received your Z visa in your home country, you also had to give the Chinese consulate/embassy your passport, albeit for a shorter length of time.