TIKTOK’S ambition to expand in online shopping is facing a major blow from new rules in Indonesia that are set to curb its operations in its biggest e-commerce market.

Indonesia is prohibiting social media companies from facilitating direct e-commerce payments on their platforms, Trade Minister Zulkifli Hasan said on Monday (Sep 25). The move, directed at ByteDance’s TikTok, means that companies will only be able to advertise products but not conduct direct transactions.

The rule is part of newly tightened trade regulations that could be introduced as soon as Tuesday by the Ministry of Trade. The policy seeks to keep Indonesia’s 64.2 million micro, small and medium enterprises that contribute 61 per cent of its gross domestic product from being squeezed out by social commerce companies. Currently, TikTok is the only social media company that allows direct e-commerce transactions on its platform.

Indonesia is the first and biggest market for TikTok Shop, and online shopping has become the app’s fastest-growing feature, with a burgeoning fan base in the country. TikTok is betting on Indonesia as a blueprint to expand into other online shopping markets, including the US.

With the new rule, Indonesia will be the first among countries in South-east Asia to push back against TikTok.

Navigating this conflict with Indonesia will be pivotal for the company as governments across the world assess how South-east Asia’s largest nation moves to curb the social media giant’s burgeoning e-commerce presence, just months after the firm said it will invest billions of US dollars into the region. TikTok is already facing possible bans and scrutiny in the likes of the US, Europe and India on national security concerns.

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TikTok has pushed back against the proposed policy. It argues that separating social media and e-commerce into different platforms not only hampers innovation, but also disadvantages millions of its Indonesian merchants and consumers. The company said that some of them rely on its platform to make a living.

“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 Indonesia 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 six million sellers and close to seven million affiliate creators who use TikTok Shop.”

Traditional online retailers, meanwhile, would benefit from restrictions on TikTok Shop. Shares of Sea, whose Shopee unit is an online shopping leader in Indonesia, surged 12 per cent in New York trading on Monday. GoTo Group, the parent of online retailer Tokopedia, advanced as much as 5.8 per cent in early Jakarta trading. BLOOMBERG