China’s central bank cut the required reserve ratio for its banks yesterday as it stepped up efforts to counter the impact of capital outflows and encourage banks to boost lending amid fresh data showing a weakening economy.

A survey published on Sunday revealed China’s manufacturing sector, a key growth driver , contracted in January for the first time in more than two years. This followed news last month of the weakest gross domestic product growth in 24 years last year.

In addition, China suffered its largest capital outflow on record in the fourth quarter last year, according to balance of payments data released on Tuesday. The deficit of $91bn on the capital and financial accounts was the worst since quarterly data were first compiled in 1998. China’s foreign exchange reserves also fell as investors sold renminbi and bought foreign currency.