As feared government’s rise in fiscal deficit is once again started fuelling the debt engines, both private and state owned enterprises. In first quarter alone, new loans have surpassed $1 trillion level. Total debt rose to 237% of GDP, highest ever. That brings total net debt to around $25 trillion.

Such levels of debt is not unusual. According to Bank of International Settlements’ (BIS) calculations debt level is at 249%, while Japan’s is at 379%, 257% for Euro Zone and 244% for United States. What unusual is the compositions of the debt. About 70% of China’s debt due is held by corporate, whereas in case of Japan as well as advanced economies, Government is the main debtor. Moreover developed countries like Japan, U.S. have advantages like acceptability of their currency globally, which is not the case for China.

China’s debt obsession is leading the country to a dangerous path, similar to a train heading for a wall. More so, because China seems to be generated and still generating more leverage than required, leading to a great ball money hunting for return in the country. Latest rush into commodities could very well be part of that.

Debt is fueling commodities rise in two ways –

At one hand, receiving new debt China’s zombie steel mills have started firing all engines, leading to a short term temporary shortage and hoarding in raw materials like iron ore, coal. Since December bottom, iron prices rose almost 90%, while Steel Rebar prices in China hit highest level since September, 2014, up around 60% this year.

On the other, speculators are joining in the run, reminding China’s stock frenzy, which finally ended last year with a devastation. According to Bloomberg, last week on Thursday, 223 million metric tons of Rebar changed hands in trading, double of China’s full year of production.

China however, is not to blame for this kind of frenzy, global monetary easing is doing its part too.

While many will call that China’s economic ailment has changed course, but we feel its better to keep an eye out on popping leverages and on banks’ balance sheets.