But companies say business environment has deteriorated More foreign companies than ever now have offices in Hong Kong - but will they keep coming? More than half say the city is a worse place to do business than it was a year ago. The United States topped the list of countries with companies whose regional headquarters are in Hong Kong, with 242, followed by Japan (168) and the United Kingdom (86), the government's investment-promotion arm, InvestHK, said yesterday. By June, 966 foreign firms had regional headquarters in the city, up from 948 a year earlier, while 2,241 had regional offices in Hong Kong, a net increase of 70 from June last year. Those operating local offices in Hong Kong numbered 2,207, up from 1,748 a year earlier. Overall, the number of foreign firms with offices in the city rose 11 per cent. Delivering the figures about foreign firms' activities, InvestHK chief Mike Rowse said they showed the economy was on track to recovery. 'These dry statistics do not exist in a vacuum ... there are real names and real companies we can cite to back them up,' he said. Mr Rowse said a low and simple tax rate was considered the most important factor affecting companies' choice of location for setting up regional headquarters or offices. But that is where the good news ends. Some 52.7 per cent of foreign companies questioned for an InvestHK survey said their views on the overall business environment had deteriorated compared with a year ago. The findings will weigh heavily on Financial Secretary Henry Tang Ying-yen, who is expected today to sketch the outlines of his budget plans in the Legislative Council - his first major announcement since taking over as finance chief in July. Battling a huge budget deficit and having faced additional expenditure on measures related to the Sars outbreak, it is almost certain that Mr Tang will have to rethink the government's target of balancing the books by 2006-07. Officials have indicated that the target could be deferred for two years. But it is understood that with signs that the economy has been recovering in the post-Sars period - helped by the signing of the Closer Economic Partnership Arrangement and relaxation of tourism rules for mainland tourists - the government could revise upwards its forecast of annual economic growth of 2 per cent. It is understood that the administration is likely to stand firm on curbing expenditure. Chan Ka-Keung, dean of the school of business and management at the Hong Kong University of Science and Technology, said he expected Mr Tang to reiterate that the government was still facing a serious fiscal deficit, even though the economy was recovering. 'The financial secretary is likely to commit to an examination of the taxation system and would emphasise the need to explore the introduction of new taxes,' Professor Chan said.