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In this paper, we analyze the disadvantages of existing on-board self-testing and self-diagnosis system, and the advantages of InteGRail project carried out in Europe. Based on the research of next-generation on-board network, we propose the design of on-board multi-level distributed diagnosis system. We point out the main advantages of distributed diagnosis systems, describe the system architecture and function classifications of each level, and analyze the main research works and core technologies. This work has provided the blue-print for the implementation of on-board distributed diagnosis system.