The leadership is well aware of the situation. These figures are openly discussed and reported in the media.

However, the situation is very complex and requires the length of multiple effort posts. Let me just give you one example: the central government has limited control over employment and wages. They can raise wages of civil servants and SOE employees but that’s only ~70 million of the total workforce in China. The rest are in private sector, which Xi has just vowed to protect (after spending a decade trying to curb private capital, a reversal of his former position) as many in the leadership believes that the government bureaucracy is “too inefficient” and that true innovation and the driver of economic growth have to come from private sector. So we are unlikely to see an expansion of the public sector.

While the government has been very competent in managing acute crises through macro-policy adjustments, as evident by the absence of financial crises that spiraled out of control e.g. the scale of the subprime mortgage crisis in the US in 2007. However, the lack of long-term strategic planning at the national level is starting to show. Such deficiency had been mostly obscured during the property and infrastructure investment boom over the past decade, but the triple crises as a result of Covid, property market bubble bursting and the tariffs imposed by the US and the EU on Chinese godos have begun to expose the innate problems associated with the economic model in China:

The decentralized nature of the Chinese economy meant that local governments have a lot of authorities (and responsibilities), whose revenues rely primarily on land revenue and value-added tax. Such budgeting structure dictated that the property market and the manufacturing sector be prioritized at the expense of other sectors and programs. Massive subsidies had been given to property developers and green tech industries (e.g. EV, solar panels) since these sectors have been announced as a national economic priority in the 14th Five-Year Plan. The lack of strategic planning at the national level resulted in local governments competing with one another to court the companies with the most favorable subsidies/tax breaks.

Of course, these subsidies had to come from somewhere, and created a huge flow of wealth into the hands of the rich. And you can imagine what is happening right now as the property market is imploding, the solar panel industry is taking record losses and the EV exports are being fenced off by foreign tariffs - so much had been invested into these sectors that the local governments have no choice but to keep propping them up, or else their budgetary situation (again, relying on land revenue and value-added tax) would face an impending crisis.

This is why the entire system needs to be revamped, not just a re-distribution of wealth (as noted above, such inequality is structural due to how the local governments financing works) and fighting corruption that is already endemic, but a re-delineation of the responsibilities and authorities between central and local governments, curbing the over-reliance on export industries, and most importantly, massive revamp on the monetary system to institute debt cancellation/restructuring, and to allow the central government the ability to create large deficits instead of relying on accumulation of foreign currencies to expand its monetary base.

I know this went a long and meandering way instead of just answering the question in a straightforward manner, but there really is no simple answer here. The entire issue is complex and has to be treated as such.