Liang overcame a late double-bogey to make the playoff, where he watched Steel send his tee shot into the water on the first extra hole, the par-4 18th at Laguna National's Masters Course.
All Liang needed was a par to secure his maiden title and the first place prize of nearly 140,000 euros.
He became only the second Chinese player to win on the European Tour after Lian-Wei Zhang, who birdied the 72nd hole to defeat Ernie Els in the 2003 Singapore Masters.
One of two overnight leaders, Liang closed with a balky 1-over 73 in the final round -- salvaged when he followed his double-bogey at the 15th with a birdie on the next hole.
Steel held a two-shot lead after a birdie at the 15th, but he also succumbed to a late double-bogey, at the 16th, to shoot his second consecutive 1-under 71.
The duo finished at 11-under-par 277, one shot ahead of England's Simon Dyson.
'I should have finished it off earlier,' said Steel, who then lamented his poor playoff.
'I was quite confident and had a picture in my mind off the tee, but I just didn't execute it, simple as that,' he explained. 'I pictured it going out to the right and drawing back into the fairway, but I just came over the top and pulled it into the water.'
Dyson shot a 1-under 71 and finished alone in third place at 10-under 278.
Last year's runner-up and the 2005 champion, Nick Dougherty also had a 1- under 71 and led a group of four players who tied for fourth place at 9-under 279. He was joined by Anthony Wall (67), Jean Van de Velde (69) and David Lynn (69).
Dougherty held the lead after consecutive birdies at the 14th and 15th holes, but also fell victim to late miscues. Consecutive double-bogeys at the 16th and 17th and a missed three-foot birdie putt at the 18th left him two shots back.
'It looks like I would have won if I had stuck around at my score before the double bogeys,' Dougherty said. 'But I played aggressively. That's how I got to that position in the first place -- so, you know, all in all, what can you do?'
Gary Lockerbie, who shared the third-round lead with Liang, began Sunday with five bogeys in his first six holes. He ended with seven bogeys, a double-bogey and just one birdie and closed with an 80 to tumble all the way into a tie for 30th place at 4-under 284.
Lockerbie had fired three straight sub-70 rounds to open the tournament.