Chrome Sync encrypts sync data on the client. By default the encryption passphrase is your Google Account password. This allows Google to read the data, as described here: https://support.google.com/chrome/answer/1181035?hl=en
However, you can set a separate Chrome Sync encryption passphrase in settings. This second passphrase is never sent to Google at all and allows you to use Chrome Sync without Google reading the data. It should be obvious why this is not the default, as requiring a second passphrase is a very significant decrease in usability, but it's there if you want it.