The Baltic Dry shipping index, which has been flashing amber signals about the world economy for the past couple of months, is telling us there is something going badly wrong because it is now stuck firmly on red.

The index, a proxy for world trade flows, suffered its second biggest-ever fall yesterday, to 11%, which took it down under the $2,000 mark and it fell another 8% today to $1,809. The drop means it has fallen more than 80% since July's peak of around $12,000 and is now at a three-year low.

The index has long been seen as a good leading indictor of future economic production levels because it charts the cost of freight movements in 26 of the world's biggest shipping lanes of "dry" materials, such as coal, iron ore and grain which feed into the production of finished goods some weeks or months ahead.

Think back to the first part of the year and there was a boom in oil and commodities prices, which pushed up demand for the ships to carry them. Now we seem to be stuck in the bust phase. We know that oil and commodity prices have fallen sharply because demand has faded in the face of high prices and because the world economy is being deflated by the global financial crisis.

There is some hope today that the worst of the financial crisis may be over, thanks to the mass injections of capital into banks by governments in Europe and the US. But the damage to the world economy is already a fact of life and the Baltic Dry is pointing to a further slowdown in both output and inflation in many of the world's economies.

The index may also be telling us something scarier. It may be telling us that the world's great industrial powerhouse, China, could be in trouble and that its imports of raw materials are collapsing at a far greater pace than the slow slide in demand from the West for China's finished goods would imply.

There have been increasing concerns about China this year. It has been booming for years and growing, if the official figures are to be believed, at more than 10% a year. That has, in turn, given rise to a stockmarket and housing market boom which now look to be going pop, as ours have done.

The great Asian miracle economy might now be coming apart at the seams, in spite of the official figures suggesting everything is stillfine. But the Chinese authorities cannot control the Baltic Dry.