Abstract: During 2012-2016, China's PPI sustained negative year-on-year growth, while CPI maintained a positive growth.Structural deflation features were obvious, which again appeared in 2019. Through the four aspects of cycle factor, structure factor, currency factor and international factor, this paper constructs the transformation model of Markov regional system, and finds out by the analysis of cumulative impulse response: the domestic leading factor of China's structural deflation is the transformation and upgrading of China's industry in recent years. With the improvement of residents' income level, the demand for services is increasing rapidly, and the rapid development of service industry is squeezing the industry;the international leading factor is the long-term quantitative easing policy of the United States, which leads to a large number of capital from China's financial system flow into the fixed investment field, aggravating overcapacity and restraining industrial prices. The loose capital environment will damage the social capital income and cause capital outflow after promoting the sharp rise of asset prices. The large amount of capital outflow will lead to the contraction of domestic money supply and the pressure of RMB devaluation, and the decrease of money supply will aggravate deflation.