Davis, who dominated the sport in the 1980s, lost the deciding frame of his tie with India's Pankaj Advani.
Wattana, meanwhile, also came out on the losing end of an 11-framer against fellow Thai Thepchaiya Un-Nooh.
Prodigal Belgian teenager Luca Brecel saw off Jimmy Robertson 6-2 and Rod Lawler fell to Norway's Kurt Maflin 6-5 in other notable second qualifying round results.
Round three takes place on Tuesday, with names such as Jimmy White, Nigel Bond and Alan McManus joining the fray.
The tournament proper, a new ranking event, takes place from October 28 to November 4 in Chengdu, China.
It features the highest level of prize money of any tournament in China, with £125,000 going to the winner.
Round two results
Adam Duffy 6-5 Liam Highfield
Kurt Maflin 6-5 Rod Lawler
Robbie Williams 6-4 Andy Hicks
Alfie Burden 6-3 Zhang Anda
Aditya Mehta 6-3 Mike Dunn
Paul S Davison 6-5 Peter Lines
Pankaj Advani 6-5 Steve Davis
Liu Chuang 6-4 Michael Wasley
Thepchaiya Un-Nooh 6-5 James Wattana
David Gilbert 6-2 Sam Baird
Luca Brecel 6-2 Jimmy Robertson
Dechawat Poomjaeng 6-3 David Grace
Aditya Mehta 6-3 Michael Leslie
Players to join round three
Players to join round four