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 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
- Sports & Recreation
- Kurt Maflin
- Luca Brecel
- Rod Lawler
- Jimmy White
- Nigel Bond
- Pankaj Advani