Neelum Jhelum Hydropower project, was accused by co-Pakistani workers of throwing the Quran on the ground.
"We have taken Ping into protective custody after protests erupted in the company when Pakistani labourers saw him throwing the belongings of a Pakistani worker including the Quran," Sardar Gulfraz, a senior police official, told AFP.
Lee Ping was moving the belongings of a Pakistani doctor after he had refused to vacate his room for relocation.
"Doctor Sajid had a dispute with the company management about the relocation of his room. He refused to vacate the room and Ping threw out all his belongings in anger," said local police official Raja Anser Shahzad.
"Local labourers saw Ping throwing out luggage including the Quran and they started protesting. Later, people from outside the company also joined the rally and around 1,000 protesters attacked the offices," Shahzad told AFP.
Police said the incident happened at midday on Friday, when local Muslims were preparing to offer their main weekly prayers.
"They broke vehicles and windows inside the company premises. We have called in extra police to protect instalments and have also moved Ping to a secret location for protective reasons," Gulfraz said.
Authorities said a commission had been formed to determine whether Ping was involved in a desecration or not.
Blasphemy is a very sensitive issue in Pakistan, where 97% of the 180 million population are Muslims, and even unproven allegations can spark a violent public backlash.
Rights campaigners argue the blasphemy laws, for which the maximum penalty is death, are often abused to settle personal scores and should be reformed.
"(Ping) will be charged under the blasphemy law only after this commission confirms that he was involved in a serious violation," Gulfraz said.
In March, more than 3,000 furious Muslims rampaged through the Joseph Colony area of Lahore, looting property and burning buildings after a Christian was accused of blasphemy.
Pakistan and China have close friendly relations and Chinese firms and engineers are working in development and energy projects across Pakistan.