Indonesia has banned e-commerce transactions on social media platforms, the trade minister said Wednesday, in a blow to short-video app TikTok, which Southeast Asia’s largest economy is doubling down on to boost its e-commerce business.
The government said the move, which takes effect immediately, is aimed at protecting offline traders and marketplaces, adding that predatory pricing on social media platforms threatens small and medium-sized businesses.
The move comes just three months after TikTok pledged to invest billions of dollars in Southeast Asia over the coming years, mainly in Indonesia, in a major push to build its e-commerce platform TikTok Shop.
TikTok, owned by China’s ByteDance, has 125 million active monthly users in Indonesia and is trying to translate its large user base into a major e-commerce revenue stream.
A spokesperson for TikTok Indonesia said it would pursue a constructive path forward and was “deeply concerned” by the announcement, “particularly the impact it would have on the livelihoods of the 6 million” local sellers active on TikTok Shop.
Indonesian Trade Minister Zulkifli Hasan told reporters on Wednesday that the regulation aims to ensure “fair and equitable” business competition, adding that it was also aimed at ensuring users’ data protection.
He warned against letting social media become an e-commerce platform, store and bank at the same time.
The new regulations also require e-commerce platforms in Indonesia to set a minimum price of $100 for certain items purchased directly abroad, according to the regulatory document reviewed by Reuters, and that all products offered must meet local standards.
Zulkifli said TikTok had a week to comply with the regulation or face the threat of closure. Indonesian Deputy Trade Minister Jerry Sambuaga earlier this month cited TikTok’s livestreaming features as an example of people selling goods on social media.
Research firm BMI said TikTok would be the only company affected by the transaction ban and the move was unlikely to hurt the digital marketplace’s growth.
The Indonesian e-commerce market is dominated by companies such as Tokopedia from local tech company GoTo, Sea’s Shopee and Lazada from Chinese e-commerce giant Alibaba.
E-commerce transactions in Indonesia reached nearly $52 billion last year and 5% of those took place on TikTok, according to data from consultancy Momentum Works.
Indonesia is one of the few markets where TikTok has launched TikTok Shop as it looks to leverage its large user base in the country.
Indonesia’s 125 million active monthly users are almost on par with user figures for Europe and lag behind the US users of over 150 million. TikTok launched an online grocery service in the United States earlier this month.
Reactions from retailers were mixed.
Fahmi Ridho, a clothing seller on TikTok, said the platform is a way for stores to recover from the blow dealt by the COVID-19 pandemic.
“Sales don’t necessarily have to be through physical stores, you can do it online or wherever. … Everything will still have a portion,” he said.
But Edri, who goes by one name and sells clothes at a major wholesale market in Jakarta, agreed with the regulation and stressed that there should be restrictions on items sold online.