I would just like to add that it is illegal for them to ask that of their employees under Chinese law. Foreigners in China are required to have their passports on them at all times, which you obviously cannot do if your scumbag employer is trying to dupe you into giving your passport to him/her.

Now, do I always carry my passport on my person in China. Hell, no. Would I write a pointed email to any employer who asks to separate me from my passport explaining this simple fact of Chinese law to them and asking them to reply, via email, if they are serious about asking me to break the law. Hell, yes. And I would pray that they would be so stupid as to reply less where I can documnt it.