The number of posts is set to 5 by default, so you have to set it to your liking. If you want to show all posts, then it's `-1`, and the number you want otherwise.

You should also put functions out of loops (as in your second `foreach`), so here is your code, optimized:

	<?php  
	$args = array(
		'child_of' => 1,
	);
	$categories = get_categories($args);
	if (count($categories)) {
		?>
		<ul>
		<?php
		foreach ($categories as $category) {
			?>
			<li><a><?php echo $category->name; ?></a>
			<ul>
			<?php
			$args = array(
				'posts_per_page' => -1, // query ALL posts
				'post_status' => 'publish',
				'cat' => $category->term_id,
			);
			$query = new WP_Query($args);
			while ($query->have_posts()) {
				$query->the_post();
				?>
				<li><a href="<?php the_permalink(); ?>"><?php the_title(); ?></a></li>
				<?php
			}
			wp_reset_postdata();
			?>
			</ul></li>
			<?php
		}
		?>
		</ul>
		<?php
	}
	?>