Jakarta

In a blow to Chinese short video app TikTok, the Indonesian government on Wednesday banned e-commerce transactions on social media platforms. The country's Trade Minister Zulkifli Hasan made the announcement saying the government was attempting to protect offline merchants, marketplaces and small businesses. 

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Hasan said the predatory pricing on social media platforms had been threatening the livelihood of small and medium-sized enterprises that could not compete with the monopolistic policies. 

"This trade regulation has been in force (since yesterday)," said Hasan, adding that “the connection [between social media and e-commerce] must be separated so that the algorithm is not all controlled” and this “prevents the use of personal data” for business purposes.

The regulation effectively means that social media companies will not be able to conduct direct transactions on the platform albeit only promote the products on the platforms. The social commerce platforms have a week to comply with the new rule, according to Hasan.

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Additionally, the new regulation mandates that e-commerce platforms in the country set a minimum price of $100 for certain items that are directly purchased from abroad. 

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Blow for TikTok?

The diktat set by Jakarta is set to land a devastating blow to ByteDance-owned TikTok's e-commerce ambitions in the country. The Southeast Asian nation is TikTok's second-largest market with 113 million users, just behind the US which has 116.5 million TikTok users, according to DataReportal.

E-commerce transactions in Indonesia accounted for nearly $52 billion last year and 5 per cent of it took place on TikTok, making it a lucrative financial opportunity for the social media giant. 

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With almost 125 million active users on the platform, TikTok had doubled down its expansion plans. According to a CNBC report, TikTok’s CEO Shou Zi Chew in an interview said the company was “going to invest billions of dollars in Indonesia and Southeast Asia over the next few years". 

After the announcement by the government, TikTok released a statement saying the company hoped that the new regulations would keep in mind the affiliate creators, connected with the app. 

“Social commerce was born to solve a real world problem for local traditional small sellers, by matching them with local creators who can help drive traffic to their online shops,” a TikTok spokesperson said. 

“While we respect local laws and regulations, we hope that the regulations take into account its impact on the livelihoods of more than 6 million sellers and close to 7 million affiliate creators who use TikTok Shop,” they added.

Notably, Indonesia was one of the first few markers where TikTok launched TikTok shop to leverage its large user base. 

(With inputs from agencies)

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