Premier Li Keqiang on Tuesday lowered China’s official GDP target to between 6.5% and 6% this year, which would be the country’s slowest annual growth rate in three decades. Li’s new GDP target, which came alongside warnings of rising “instability and uncertainty” and “tough battles” ahead, was part of the Government Work Report (GWR) policy blueprint released at the open of the 13th National People’s Congress in Beijing.

But far from fixating on slowing growth, Li’s Work Report instead emphasized how China would counteract it. Here’s what we think stands out for investors:

* Tax cuts, incoming. Li confirmed significant tax and fee cuts worth some CNY 2tn, slightly surpassing market expectations. The value-added tax (VAT) rate for manufacturers will drop three percentage points to 13%, and the middle-bracket rate (for transport and construction sectors) will fall one percentage point to 9%. Broadly speaking, sectors with higher estimate tax-to-revenue ratio and those with strong pricing power (by way of a higher industry concentration ratio) should benefit.

* Continued monetary easing. Li said policy would be “neither too tight nor too loose”, pointing to continued targeted easing measures but no repeat of the “massive stimulus” of the past. Credit creation should stabilize, with the government aiming for expansion in both M2 and total social financing to track nominal GDP growth. We forecast a moderate rebound for M2 growth to around 8%-8.5% Y/Y, and continue to expect another 100-200 bps of reserve requirement ratio cuts this year.

* Fiscal policy goes “proactive”. China’s official fiscal deficit target for 2019 rose less than expected, climbing to 2.8% of GDP (vs 2.6% in 2018). However, we believe the actual fiscal deficit ratio could overshoot as “more forceful” pledges translate into local spending on concrete, steel and highways. At any rate, the effective deficit remains larger thanks to the off-budget increase in special local government bond quotas, which jumped some CNY 800bn to CNY 2.15tn for 2019.So we tend to think investors should focus more on China’s efforts to shore up its economy than on the weaker underlying growth that has spurred the policy support. Following the latest leg of the China equity rally, valuations are now approaching their long-term averages, and we think investors may start to become more demanding on US-China trade talks and 1Q19 Chinese earnings. Within our China strategy, we continue to prefer onshore to offshore Chinese stocks. For our Asia portfolios, we remain tactically overweight offshore Chinese equities relative to Asia ex Japan.