TikTok Shop Poses a Threat to Indonesia’s SMEs, May Aggravate Anti-Chinese Sentiment

TikTok Shop Poses a Threat to Indonesia’s SMEs, May Aggravate Anti-Chinese Sentiment

TikTok Shop Poses a Threat to Indonesia’s SMEs, May Aggravate Anti-Chinese Sentiment

TikTok Shop Poses a Threat to Indonesia’s SMEs, May Aggravate Anti-Chinese Sentiment

The rapid growth of the e-commerce platform TikTok Shop following its entry into Indonesia may put local small and medium-sized enterprises (SMEs) at risk.

Indonesia has a long history of racism and hostility towards its Chinese population dating back to Dutch colonial times. A China expert has expressed concerns that TikTok Shop’s competitive edge may exacerbate the problem of Chinese exclusion in the Southeast Asian country.

Izzudin Al Farras Adha, an economist from the Institute for Development of Economics and Finance (INDEF), cited cheap labor, data on user preference, and direct sale as the main reasons for TikTok’s competitive prices.

“The price of goods [sold at the TikTok Shop] is much cheaper because they are sold directly by users from China, compared to local MSME products, especially related to skincare,” Mr. Farras said during an online discussion on July 24.

He also pointed out that as a social media platform, TikTok has collected a large amount of data to help it understand users' preferences, which is a unique advantage.

“These social commerce use the data to produce themselves. This is what is done at the TikTok Shop,” Farras said.

Moreover, TikTok is also still in the stage of burning its investor's money. “Thus, cheap production cost, shipping costs are often free, plus there are no specific regulations in Indonesia,” he added.

Speaking to Taiwan's Central News Agency, Mr. Farras said that Indonesia is the second-largest country of TikTok users after the United States.

He hoped the Indonesian government would pay more attention to TikTok's operation and influence in the country—approximately 113 million Indonesians use the short-form video app owned by Chinese Internet giant ByteDance. Indonesia is the most populous country in Southeast Asia, with young people accounting for 52 percent of its population.

The ByteDance logo is seen at the entrance to a ByteDance office in Beijing on July 8, 2020. (Greg Baker/AFP via Getty Images)
The ByteDance logo is seen at the entrance to a ByteDance office in Beijing on July 8, 2020. (Greg Baker/AFP via Getty Images)

TikTok Shop was launched in Indonesia over two years ago, and by the end of last year, it had become the country's fifth-largest e-commerce platform, according to a recent study by Singapore-based venture outfit Momentum Works.

Mr. Farras also said the lack of e-commerce regulations in Indonesia could lead to an influx of cheap Chinese products, undermining the competitiveness of local small and medium-sized enterprises, which contribute more than 60 percent of Indonesia's GDP and employ more than 90 percent of the country's workforce.

Mr. Farras is not alone. Several economists and government officials shared similar concerns with The Jakarta Post.

Bhima Yudhistira, executive director of the Center of Economic and Law Studies, told the outlet that e-commerce users in Indonesia had become rattled by TikTok.

The e-commerce users most disturbed by the TikTok Shop are those focusing on transaction sizes below 1 million rupiahs ($66.82), such as fashion and accessories, as TikTok Shop is targeting that market niche, Mr. Yudhistira said.

TikTok Chief Executive Officer Shou Zi Chew delivers his speech during the launch of TikTok Socio-Economic Impact Report 2023 event at The Ritz Carlton, Pacific Place in Jakarta, Indonesia, on June 15, 2023. (Ajeng Dinar Ulfiana/Reuters)
TikTok Chief Executive Officer Shou Zi Chew delivers his speech during the launch of TikTok Socio-Economic Impact Report 2023 event at The Ritz Carlton, Pacific Place in Jakarta, Indonesia, on June 15, 2023. (Ajeng Dinar Ulfiana/Reuters)

Chen Weihan, insights lead at Momentum Works, said that TikTok Shop had demonstrated impressive sales growth over the past two years, with about half of that coming from Indonesia alone.

Mr. Chen told The Jakarta Post that TikTok’s capability to capitalize on its high volume of traffic in Indonesia gave itself an advantage over traditional e-commerce platforms and thus became an opponent that other online businesses could not ignore.

The Indonesian government announced on July 27 that it plans to tax cross-border products bought from social media platforms, including TikTok. In response, TikTok Indonesia said it would comply with the new regulations.

Anti-Chinese Sentiment

Shi Shan, a China expert and veteran commentator, has raised concerns about the rapid growth of TikTok Shop in Indonesia from a different angle.

He told The Epoch Times on July 30 that TikTok’s shopping platform is eating the lunch of other businesses, which may not be a big deal in Western countries, but the situation is very different in Indonesia, where there has long been anti-Chinese sentiment.

In particular, TikTok Shop does not pose much of a threat to big businesses, but it does to many small and medium-sized businesses, which could lead to a dangerous situation.

Before its independence in the 1940s, Indonesia was ruled by Dutch colonizers for more than 300 years. As the Dutch adopted a divide-and-rule policy, they gave the local Chinese many advantages. For instance, the Dutch elected influential upper-class Chinese and gave them certain powers of internal management, and even allowed these Chinese to manage part of the tax revenue.

The indigenous Indonesians could only live at the bottom of the hierarchy and had been oppressed for a long time, so they had always held a grudge against the local Chinese community.

In addition, many of the Chinese who emigrated to Indonesia were engaged in business, and their economic power was significantly better than that of indigenous Indonesians, who became poorer and subsequently more resentful of the Chinese.

Between September 1945 and September 1949, during the Indonesian War of Independence between the Dutch and Indonesian forces, mobs took the opportunity to burn down the Chinese houses, plunder their properties, force them to leave their homes, and even sometimes massacre them. According to incomplete statistics, 3,500 Chinese Indonesians were killed or injured, and 1,631 disappeared during those four years.

The emergence and rise of communism in Southeast Asia greatly intensified Indonesia's hostility towards the Chinese.

On Sept. 30, 1965, the battalion commander of the Indonesian Presidential Guard, who was an alleged communist, staged a coup d'état. This was followed by an anti-communist purge by Major General Suharto and a nationwide crackdown on communists in Indonesia.

The Communist Party of Indonesia was predominantly Chinese, but many non-communist Chinese were also implicated, and massacres occurred. According to academic statistics, about 500,000 people died in the anti-communist pogroms.

When Suharto took office, he was resolutely anti-communist. During the 30 years of his rule, the Indonesian government restricted the use of Chinese names, the establishment of Chinese schools and Chinese-language media, and forced the Chinese to abandon their language, culture, religious beliefs, and customs.

The Chinese were excluded from Indonesia’s political, military, and cultural spheres. They also could not work in government, the military, or in public schools, which exacerbated the social climate of Chinese exclusion.

This culture has also been utilized by the authorities to deflect social conflicts.

Angry Indonesian mobs burn cars and Chinese shops as they plundered shops in Jakarta on May 14, 1998, on the third day of violence, which brought terror to the Indonesian capital. (Choo Youn-Kong/AFP via Getty Images)
Angry Indonesian mobs burn cars and Chinese shops as they plundered shops in Jakarta on May 14, 1998, on the third day of violence, which brought terror to the Indonesian capital. (Choo Youn-Kong/AFP via Getty Images)

Black May Riots

In May 1998, the Chinese Indonesians were again subjected to organized abuse and killings; Chinese-owned businesses and residences were smashed and looted, and Chinese women were gang-raped. The world was shocked by the riots, which Chinese worldwide call the “Black May Riots.”

In the three days from May 13 to 15, more than 5,000 Chinese businesses and homes were reportedly burned in Jakarta, nearly 1,200 people were killed while 468 women and girls, the youngest of whom was 9 years old, were raped.

During the riots, violence against ethnic Chinese occurred in dozens of cities in Indonesia. The military and police, who were in the area, ignored cries for help.

It is generally believed that the riots were organized and premeditated and that Suharto instigated them through military intelligence to divert pressure from the financial crisis and ease public discontent.

According to the 2020 census, Indonesia has a population of 270 million, of which 3.24 million, or 1.2 percent, were ethnic Chinese. However, Chinese state media estimated that there are 10 million Chinese in Indonesia, suggesting that most do not identify as Chinese descendants for fear of becoming a victim in the next anti-Chinese riot.