Buildings in the Central district are seen from Victoria Peak in Hong Kong on August 28, 2019.

China has "no good options in Hong Kong," a former U.S. diplomat told CNBC as nearly four months of mass protests rock the former British colony.

"Hong Kong is one of the world's greatest cities and Xi Jinping decided many years ago to devalue that asset to teach a lesson for the rest of China. Hong Kong is where it's at because of actions of Beijing right now," said Kirk Wagar, former U.S. ambassador to Singapore.

Hong Kong has been engulfed by demonstrations, with some clashes between protesters and police turning violent. The turmoil was sparked by a now withdrawn bill that would have enabled extraditions to mainland China from Hong Kong.

Although the city's leader, Carrie Lam, formally retracted the contentious bill earlier this month, the public clamor has not relented. Hong Kong has cancelled celebratory events for China's 70th anniversary on Oct. 1 as protests continue.

"I think China has handled it with restraint in a way that I did not expect, and I'm hopeful," Wagar, now co-chair of public strategy firm Mercury, said on "Squawk Box."

The former ambassador said he has been "very impressed" by Xi's patience. Although state media has warned that protesters are "asking for self-destruction" and released video showing military vehicles near the border, Beijing has not deployed the People's Liberation Army to Hong Kong.

"I think past leadership would not have waited and would have exercised one of those bad options," Wagar said. "I don't know that I see anything happening."

When asked if he thought military intervention is possible, Wagar said, "I'm not ready to go there."