Hey Jorgie-That's my take, yes... which is a bit extreme... I'm thinking maybe it doesn't slice his arm so much as dig into it? That sword is a single edged blade, I always thought, so that'd be a hell of a knee.
But then again, Bao-man's kicks and such are cracking Shin's armor, so, I guess it kinda fits.
Regarding why he can't bring the sword down... well, given his kicks break armor (which is fanciful), maybe I'm splitting hairs, but, that'd be a pretty hard thing to do, bio-physically. In the end, martial arts are about the physics of a human body, creating and expending force, managing torque, etc.
To knee shin, Mr Dumpling went up on one foot, and pivoted, creating energy and channeling it into his knee. Shin has used that against him- his knee's energy expended itself on Shin's sword.
But, although its not pictured, the standard way to do that would be- to properly channel all his force into his knee, Bao-man would have had to move his sword arm from where it is... he would have extended it out away from his body. He would basically have swung his sword away from Shin, in the opposite direction/trajectory his knee travelled.
So, he could now swing his sword, and Shin is definitely exposed... but, Bao-guy just got his knee split, and his body's first reaction would be 'injury/stance recovery.' He's a martial arts master so I guess we could say, its not out of the realm of possibility a manga martial master could immediately transition from terrible injury to attack that way, but, even so, it'd be pretty hard to do. He's on one leg, he's at zero potential energy (after expending all his force on a failed knee attack), so, the only way he could generate the force for the blow would be to pull his cut knee OFF of shin's sword and swing his leg backwards while swinging his sword forward. (swords are heavy, they require using one's limbs as counterweights to swing one-footed).
But then he'd be counting on being able to land on his injured leg without buckling. he wouldn't know yet how badly injured he is, so that'd be risky as hell... especially because once he disengaged his knee from the blade, shin would be able to block again.
We'll see if he tries it.