Inform your Embassy in Beijing for the new passport. 

You might dial SAFEA (Foreign Expert Bureau) for guidance what to do about your valid Residence permit.

You should always keep copies of your documents when traveling (both photocopies and digital).. for times like this... 

All you need to do is fill out lost / stolen documents form at your embassy and they will cancel the old number and order you a new one.... If you need to leave before the new one arrives, they will give you the papers needed to get to your home country (only) you will not be allowed to travel to other countries.

I've never heard of that happening before, but of course anything is possible.  I bet the PRC govt officials would go to extreme lengths to rectify the situation.  I have no way of knowing this for certain, but I have dealt with Chinese officialdom many times and they have always conducted themselves in a professional manner.  (true I've always done this in 1st tier cities)

Now kids, a word from Captain Obvious!  

    ***always keep multiple photocopies/scans of your important documents***

Why would you give your passport to an official? You mean the high ranking officials whose job is to collect hongbao and peoples' savings? The immigration officers at the PSB are the only ones you should give it to. If an official ask for it politely refuse to give him, it's that easy.

Just because a guy say "I am the mayor of Chinese town, give me your passport" doesn't mean I will abide.

This is clearly a bogus post. 

After reading your question ,I would like to say that there are two possibilities in which you have been asked to hand over your passport to the official, they are:-

(1) You have submitted it in the visa office for the issuance of  residence permit and they lost it

(2) You were caught working illegally and as a part of investigation police kept your passport and then they lost it ,and you came to know about it when you went to take it back.

In either of the possibilities, you should inform your embassy immediately about it and go as per your  embassy's procedure .

But still, I couldn't understand the background of your question that  which official took your passport and under what circumstances and then how come your passport is lost.

Anyhow, only advice I can give from my experience is that contact your embassy and also file complaint of lost passport  at the nearest police station or ask for a letter stating the loss of passport from the dept, of concerned official who lost your passport .

Hahahaha...

I think someone lied to you. I am pretty sure identity theft is being committing as we speak.