Look, it's very simple really. Pellegrini is pragmatic and if England was developing high-end players, then we'd have more English players.
Luke Shaw is a City target, but chances are his fondness for Chelsea will see him end up there. Shaw is a rare example of a current young English talent with the level of ability and potential to play for City (as opposed to another Scott Sinclair) and City are interested in him.
If more Luke Shaws pop up, then City will probably look into signing them too. If Barkley develops some more, he could be someone City go far. City have apparently kept an eye on Ravel Morrison too, and he could be a top talent if his rotten attitude would change. But they won't sign low or mid-level talent anymore just because they're English, a mistake that has been made several times.
The way City's academy teams are developing right now, chances are we will soon develop some of the cream of the crop and won't need to spend too much money on overpriced English lads from other sides.