It looked like Amazon.com Inc.’s yearslong quest to build a shopping business in China was a bust in July when it folded a big part of its local business.

In fact, Amazon’s China business is bigger than ever. That is because it has aggressively recruited Chinese manufacturers and merchants to sell to consumers outside the country. And these sellers, in turn, represent a high proportion of problem listings found on the site, according to a Wall Street Journal investigation.

The...