Brian Baker, chief executive of PIMCO Asia Ptd Ltd, said the firm, with around $450 billion in assets under management, was not looking to take advantage of China's Qualified Foreign Institutional Investor (QFII) scheme.
"We're not going to go to the extent of trying to obtain QFII status given concerns over liquidity, rule of law, clarity, transparency and diversity," Baker told a financial forum.
China recently increased to $10 billion from $4 billion the sum that approved overseas investors can plough into the country's stock and bond markets under the QFII scheme.
Until the domestic market developed significantly, California-based PIMCO would continue to play the China story by investing in Chinese foreign currency-denominated bonds, he said.
Other problems hindering the market included the absence of a liquid benchmark yield curve, the lack of regulatory transparency and an underdeveloped derivatives market. A reliable third party ratings system needed to be set up, information disclosure to investors improved and restrictions on corporate issuance lifted, Baker added.
China is trying to develop its bond market to reduce the economy's reliance on banks, which provide over 90 percent of financing.
A thriving bond market would allocate capital more efficiently, officials say, and provide funding channels for private sector firms that now find it hard to secure bank loans.
Some of the problems faced by China were evident elsewhere in Asia; PIMCO had limited investments in the region's local currency-denominated bonds, in part due to relatively illiquid markets, Baker said on the sidelines of the forum.
Despite PIMCO's limited interest for now, he said China had made rapid progress building its bond market from a slow start.
It had introduced puttable and callable bonds, interest rate swaps and subordinated debt and was considering re-opening the bond futures market closed down after a scandal in 1995, he said.
"We want to be able to participate in the very impressive economic story that is going on in this country," Baker said. "They have a lot of different asset types but they are small markets. They are just in their infancy.