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U.S. and China are not in a new 'Cold War,' says a former diplomat

VIDEO1:2801:28Hong Kong's role as China's link to the world will keep eroding, says expertSquawk Box Asia

Despite escalating tensions between the U.S. and China, they are not in a new "Cold War," a former Singapore senior diplomat Bilahari Kausikan said Wednesday.

From trade and technology conflicts to the origins of the coronavirus pandemic and a new law in Hong Kong, the world's two largest economies are currently embroiled in disagreements on several fronts.

"I don't think they are on an inevitable collision course. People forget one big factor — and that's the nuclear factor. There is a state of nuclear deterrence, and that makes war by design highly improbable," said Kausikan dismissing outright conflict between the two world powers.

"Doesn't mean it cannot happen by accident, but it is improbable," said Kausikan, who was formerly Singapore's Permanent Representative to the United Nations, and previously served as permanent secretary at the Ministry of Foreign Affairs in Singapore.

"On the other hand, I don't think it is the new 'cold war,'" he said, pointing out the former Soviet Union and the U.S. were "only very tangentially connected" economically.

The national flags of the U.S. and China waving outside a building.Teh Eng Koon | AFP via Getty Images

In comparison, China and the U.S. right now are so enmeshed and much more interconnected that both sides will find it very hard to decouple.

While China has played up the current protests in the U.S. with the state media sometimes taking jibes,China is not unaware of its own problems, Kausikan told CNBC.

"They are probably enjoying the show, but I don't think they are without worries of their own," said Kausikan, who is currently the chairman of the Middle East Institute at the National University of Singapore.

More than the U.S., China needs economic performance to legitimize the Communist Party's rule, he said.

With global economic performance battered by the coronavirus pandemic, hitting demand hard, Chinese growth cannot really recover till the rest of the world does, he said, and that will hurt social mobility.

Beijing's emphasis on 'one country'

China last week approved the plan to impose national security laws in the Chinese city of Hong Kong. It comes amid protests about eroding freedoms in the territory, as the new law will bypass the city's legislature.

Since Hong Kong's sovereignty was handed over from the United Kingdom to China in 1997, it has been ruled under the "one country, two systems" framework which grants the city freedoms and limited autonomy that those in mainland China do not have — such as freedom of speech and the right to protest.

I don't know why anybody is surprised by this move by China. 'One country, two systems' — Beijing's emphasis has always been on 'one country.'Bilahari Kausikanchairman of the Middle East Institute at the NUS

China says Hong Kong will still retain its autonomy even with the new law that's aimed at secession, subversion of state power, terrorism and foreign interference. However, those opposing the law say it will further diminish Hong Kong's autonomy and gives the central government greater powers to control dissent.

"I don't know why anybody is surprised by this move by China," Kausikan said. "'One country, two systems' — Beijing's emphasis has always been on 'one country,'" Kausikan said.

"Whatever autonomy Hong Kong has enjoyed since 1997 has been by the leave and favor of Beijing," he said, adding that the extent of that depends on Hong Kong's sense of the limits and self-restraint.

"There is a substantial number of people in Hong Kong who don't know the limits," he said citing earlier pro-democracy protests even before last year's, such as those in 2014. It has also become increasingly clear that the city's administration has not been able to control the civil unrest.

VIDEO2:4202:42Hong Kong security law a 'really serious blow' to 'one country, two systems' notion, says expertSquawk Box Asia

While the Hong Kong people may suffer from the fallout of recent developments, he said it won't matter to China.

"Does Beijing care? I don't think think it cares that much," said Kausikan. "It's just another Chinese city."

That is as Hong Kong's economic importance to China is diminishing.

According to Reuters, Hong Kong contributed only about 2.7% to China's GDP last year, compared to more than 18% in 1997 — when it was handed over to China.

While investors needed Hong Kong to get to the Chinese market in the past, they can now do so directly to the mainland — albeit with some inconvenience — as Beijing is opening access to its markets.

"Hong Kong's historical role as the intermediary between the rest of the world and China has eroded and will continue to erode," he said.

CNBC

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