Grace, 31, had an amazing run to the semi-finals last year but 19-year-old Zhao, one of the rising stars of the game, showed superb form to beat him.
The Leeds player said he felt the need to go for hard pots because Zhao was "potting balls off the lampshade".
"I had half-chances but I couldn't take them," Grace said.
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"Up until a few weeks ago I was winning lots of first-round games. But I have had Mark Williams in the last tournament [Northern Ireland Open] and Zhao Xintong here.
"It's a tough draw so I will not beat myself up too much.
"It would have been to get through to at least the televised stages because I really enjoyed it last year. But it wasn't to be."
Grace, the world number 47, said he felt his form was decent and remained positive about his chances in the German Masters qualifiers and Scottish Open, which are both before Christmas.
"I don't feel like I am that far away - just a few missed shots here and there and key moments in the game," he added.
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David Grace was unable to repeat his 2015 UK Championship heroics but said he did little wrong in his 6-2 first-round defeat by China's Zhao Xintong.